Powell Maintains Fed Pledge to Act to Sustain U.S. Expansion
Jerome Powell, chairman of the U.S. Federal Reserve, speaks during a meeting with the Board of Governors for the Federal Reserve in Washington, D.C., U.S. (Photographer: Aaron P. Bernstein/Bloomberg)

Powell Maintains Fed Pledge to Act to Sustain U.S. Expansion

(Bloomberg) -- Federal Reserve Chairman Jerome Powell said the central bank is “carefully monitoring” downside risks to U.S. growth and “will act as appropriate to sustain the expansion,” reiterating concerns last week that cemented expectations for an interest-rate cut later this month.

“Uncertainties about this outlook have increased, however, particularly regarding trade developments and global growth,” Powell told a dinner audience at the Bank of France in Paris on Tuesday, referring to the Fed’s baseline scenario for growth to “remain solid.” Federal Open Market Committee participants “have also raised concerns about a more prolonged shortfall in inflation below our 2% target,” he said.

Powell’s remarks closely resembled his July 10-11 testimony to U.S. lawmakers and continue to support the case to lower rates when the Fed meets in two weeks amid business uncertainties stemming from President Donald Trump’s trade policies and slower global growth.

U.S. stocks initially trimmed losses after Powell’s remarks before sinking again to end lower after Trump said he could impose more tariffs on China. Earlier in the day traders reacted to better-than-expected economic data and comments by Trump about trade tensions with China. Ten-year U.S. Treasury yields were trading around 2.11% in New York at 4:30 p.m., down from 2.14% shortly before Powell’s speech was released.

Investors fully expect a quarter-point cut at the Fed’s July 30-31 gathering, according to pricing in interest-rate futures, and the debate has moved on to whether officials could ease by a more aggressive, half-percentage point.

25 vs. 50

Chicago Fed President Charles Evans, speaking with reporters later on Tuesday in Chicago, discussed the merits of cutting by a half point without clarifying if he backed making such a move.

“There is an argument that if I think that it takes 50 basis points before the end of the year to get inflation up, then something right away would make that happen sooner,” he said, adding that he was not worried about inflation taking off unexpectedly.

Evans also said that policy makers favoring a risk-management approach to lowering borrowing costs might prefer to move more slowly, and he noted that the U.S. economy “is doing well.”

Global Links

The event in Paris celebrates the 75th anniversary of the Bretton Woods conference that led to the creation of the World Bank and International Monetary Fund.

Powell spoke broadly about the importance of international linkages among economies and their common challenges. He specifically focused on low rates of inflation and low interest rates, which are likely to hit zero again the next time central banks need to stimulate their economies.

“This proximity to the lower bound poses new complications for central banks and calls for new ideas,” Powell said, suggesting that central banks should look beyond unconventional tools such as bond buying and forward guidance used in the last crisis. “We must continue to assess additional strategies and tools to bolster our economies and meet our inflation and employment mandates.”

Fed Listens

The Fed is engaged in a year-long review of strategies such as average inflation targeting, where a central bank runs inflation at slightly higher levels than its goal to make up for periods when it was too low. The exercise has included a number of public-listening events around the country to hear from representatives of the labor, business and low-income communities about the economy and monetary policy.

The Fed has mostly missed its 2% inflation target since it adopted that goal in 2012.

Powell also noted in his remarks that demand for accountability and transparency are higher after the financial crisis. The Fed chairman has been persistently attacked by Trump for his policies.

“Our audience has become more varied, more attuned to our actions, and less trusting of public institutions,” Powell said. “Central banks must speak to Main Street, as well as Wall Street, in ways we have not in the past, and Main Street is listening and engaged.”

©2019 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.