DALLAS Federal Reserve Chairman Jerome Powell said the central bank carefully monitored a modest slowdown in global growth, whose strength…
DALLAS Federal Reserve Chairman Jerome Powell said the central bank carefully monitored a modest slowdown in global growth, whose strength last year had given a major turnaround for the US economy.
“This year we have seen a gradual chipping away on that picture. You’ve seen a bit of a slowdown – not a terrible slowdown,” said Powell on Wednesday night. “You’re still seeing solid growth, but you’re seeing growing signs of a slowdown. And that’s about.”
Global growth prospects were one of a number of challenges Powell flagged. While he did not say that one of them was strong or surprising enough right now to change Fed’s current political path to gradually lift the pace, the focus was remarkable, as such risks have not been as prominent in Powell’s other public comments since he became president in February .
There is a risk that US economic growth may slow down in the next few years, as the latest fiscal stimulus from tax cuts and increases in spending extinguishes, said Powell during a moderated discussion in Dallas Fed with the Reserve Bank President Robert Kaplan.
A separate challenge is that US growth continues to outperform the rest of the world and put pressure on some emerging markets that face the head from a stronger dollar.
“The US economy is only very strong, and it is stronger than many other major economies right now,” he said.
While Powell acknowledged the latest stock market, the sales tax could affect the economic conditions of slower growth, he did not suggest it would have been enough for the Fed to change its policy plans.
Market conditions are “one of many factors” that the Fed considers when deciding where to determine the interest rates, he said.
Officials voted unanimously in September to raise their benchmarks to a range between 2% and 2.25% and were held fast at the meeting last week. After the meeting, officials offered a most positive appreciation of the US economy, indicating that another increase in interest rates is likely at its meeting next month.
In September, officials in september gave plans to raise their benchmark short-term interest rates once a year. Officials were divided if they would be raised two, three or four times next year. It would drive the rate close to 3%, which is the majority of officials who expect it to settle in the long run ̵
1; a so-called neutral tax rate that does not track or slow down growth.
Mr. Powell said Wednesday’s biggest challenge to Fed now is to consider how much longer and at what rate to raise prices. He said that the central bank would evaluate “very carefully … how markets and the economy and business contacts react to our policies”.
Investors carefully watched Mr Powell’s comments Wednesday after comments he made at his latest public appearance ] October 3, some investors led to believe that the Fed could raise interest rates beyond what they had expected. This led to concern that the Fed could raise prices too much, which led to a recession.
Last month, Mr. Powell discussed whether Fed would raise prices over neutral and say that the worry was premature. The prices are “far from neutral at this time, probably,” he said during a moderated discussion in Washington. “We need the rate gradually, gradually, gradually, moving back towards normal.”
These comments came from a number of strong economic data from the United States. Together, they increased investors’ expectations that Fed favored more interest rate hikes next year. The return on the benchmark 10-year government debt affected short seven years high in early October. Bond yields rise as prices drop.
Although the substance of Powell’s October commentary largely reflected many public officials’ public forecasts, some commentators said that his tone reflected greater conviction of raising prices, which contributed to the bond market. Rising bond yields, in turn, sent the stock market on a game trip last month.
At the same time unemployment was 3.7% in October, a low and average hourly salary of almost half a century rose 3.1% from one year earlier, the largest annual increase since 2009.
Most Fed officials subscribe to A certain version of a framework involving wages and prices should rise when unemployment falls below a so-called natural level consistent with stable inflation. Officials, including Mr. Powell, have been careful to note that this ratio is weaker than before, and their estimates of natural unemployment could be inaccurate.
Inflation will be central to determining how the federal political path is developing. Inflation has kept close to Fed’s 2% target for most of this year after having undergone it for many years. Fed shows inflation around 2% as a sign of balanced supply and demand.
Mr. Powell said Wednesday he was optimistic, the US economy could maintain a higher rate of growth, which would allow for faster growth without a high inflation rate. “You always want to be on the optimistic side of this economy,” he said.
When asked about President Trump’s latest criticism of Fed raises, Mr. Powell any escalation. In an interview with the Wall Street Journal last month, Mr. Trump Fed quoted as the biggest risk to the economy. He described former Fed as crazy and out of control because of his plans to gradually raise prices despite some clear signs of inflation.
“We have protection against political commitment,” says Mr. Powell and cites legal safeguards that prevent Fed’s decision from being reversed by the executive branch. Mr. Powell did not mention Mr. Trump with name.
Mr. Powell also defended the principle of monetary policy independence for central banks and cited the importance of credibly monitoring inflation by being free from politics.
“It makes it possible for us to serve the public better,” he said. “Central banks, when they come too close to the government, change incentives.”
Write to Nick Timiraos at [email protected]