Jerome Powell, chairman of the U.S. Federal Reserve, adjusts his glasses before the start of a Senate Banking Committee hearing in Washington, D.C., U.S. Photographer: Andrew Harrer/Bloomberg

Powell Says Fed Is in No Rush to Make Judgment on Policy Changes

(Bloomberg) -- Federal Reserve Chairman Jerome Powell said a healthy U.S. economy has faced some “crosscurrents and conflicting signals” that officials in January decided warranted taking a patient approach to future interest-rate changes.

With inflation pressures “muted,” the Federal Open Market Committee in its decision last month to keep interest rates unchanged “determined that the cumulative effects’’ of its actions and global and financial developments, “along with ongoing government policy uncertainty, warranted taking a patient approach with regard to future policy changes,’’ Powell said in prepared testimony.

“Going forward, our policy decisions will continue to be data dependent and will take into account new information as economic conditions and the outlook evolve,’’ he told the Senate Banking Committee. “We’re in no rush to make a judgment about changes in policy.”

Investors took Powell’s remarks in their stride, with the S&P 500 Index little changed. Treasuries remained slightly higher on the day as Powell spoke, while the dollar was marginally lower after swinging between small gains and losses.

The Fed chairman’s remarks showed no bias toward further interest-rate increases or cuts. He said the data point to continued spending gains this quarter, and he expected the negative effects of the government shutdown to “unwind over the next several months.’’ Under further questioning by senators, Powell again re-emphasized that he isn’t pre-judging the direction of policy.

“Wages have moved up. We welcome that,” he said. “We don’t find it troubling from an inflation standpoint.” He added that “this is a good time to be patient and watch and wait and see how the situation evolves.”

The FOMC in January expected the economy to expand “at a solid pace,’’ though somewhat slower than 2018, he said in prepared remarks. The committee also expects the job market to remain “strong.’’

But Powell cited a number of near-term and long-term risks to the outlook.

‘More Volatile’

“Financial markets became more volatile toward year-end, and financial conditions are now less supportive of growth than they were earlier last year,’’ the Fed chairman said. “Growth has slowed in some major foreign economies, particularly China and Europe.’’

He added that “uncertainty is elevated around several unresolved government policy issues, including Brexit and ongoing trade negotiations.’’

Powell said the U.S. also faces longer-run challenges, including productivity that is too low, “relatively stagnant incomes” for many families, a lack of upward economic mobility for lower-income workers, and government debt that’s on an “unsustainable path.”

Powell also highlighted the progress the Fed has made in trimming its balance sheet to about $4 trillion, down by some $500 billion from its 2014 peak. Officials said in January they will likely halt the process of letting assets roll off the balance sheet before the end of 2019, according to minutes of their meeting last month. Powell didn’t offer any more specifics on the level at which he expects the balance sheet to level off.

Balance Sheet

“In the longer run, the size of the balance sheet will be determined by the demand for Federal Reserve liabilities such as currency and bank reserves,” he said.

The U.S. economy is in its 10th year of expansion, and could set a record for its length later this year. Economists expect gross domestic product to rise 2.5 percent in 2019, though the quarterly pace will gradually decelerate into 2020, according to estimates tracked by Bloomberg.

The extended period of growth has pulled more people into the work force and lowered the unemployment rate, even while inflation has moved only gradually higher.

Still, Powell came under attack from President Donald Trump as the Fed tightened. Powell and Trump discussed the economy over dinner earlier this month, and Trump’s criticism has subsided of late.

Powell used the word “transparency’’ three times in the first paragraph of his prepared testimony before the Senate committee, and referred to the Fed’s independence twice.

By most measures, the Fed is around its mandate of maximum employment and stable prices. The jobless rate stood at just 4 percent in January, while the Fed’s preferred inflation index rose 1.8 percent for the year ending November.

Powell will testify before the House Financial Services Committee on Wednesday at 10 a.m.

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