Federal Reserve Chairman Jerome Powell said the central bank stands ready to do what is necessary to support the record-long U.S. economic expansion, saying that international developments are weighing most heavily on the Fed’s decisions.
“Based on our assessment of the implications of these developments, we will act as appropriate to sustain the expansion,” Powell said this morning at the central bank’s annual Jackson Hole, Wyo., retreat. “It will at times be appropriate for us to tilt policy one way or the other because of prominent risks.”
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Still, Powell gave no clear indication of whether the Fed plans to step up the pace of interest rate cuts amid growing concern about a possible economic slowdown, drawing an immediate rebuke from President Donald Trump.
“As usual, the Fed did NOTHING! It is incredible that they can ‘speak’ without knowing or asking what I am doing, which will be announced shortly. We have a very strong dollar and a very weak Fed. I will work ‘brilliantly’ with both, and the U.S. will do great…” Trump tweeted after the speech.
“….My only question is, who is our bigger enemy, Jay Powel [sic] or Chairman Xi?” he added.
Trump has waged a public campaign for months to press the Fed to aggressively slash rates, blaming Powell and the central bank for any economic sluggishness.
For his part, Powell said uncertainty caused by Trump’s tariffs on China and other U.S. trading partners is one of the major risks the Fed is watching.
The three weeks since the Fed decided to cut its key interest rate — the first reduction since the Great Recession — in late July “have been eventful, beginning with the announcement of new tariffs on imports from China,” he said. China on Friday announced a fresh round of tariffs on $75 billion in U.S. goods.
“We have seen further evidence of a global slowdown, notably in Germany and China,” Powell said. “Geopolitical events have been much in the news, including the growing possibility of a hard Brexit, rising tensions in Hong Kong, and the dissolution of the Italian government… Long term bond rates around the world have moved down sharply to near post-crisis lows.”
The Fed cut interest rates by 25 basis points in July on a divided vote. Four regional presidents this week expressed concerns about reducing rates, setting up a potential showdown at the central bank’s Sept. 17-18 meeting.
“We’ve added accommodation, and it wasn’t required in my view,” Kansas City Fed President Esther George, who voted against the rate cut at the July meeting, told CNBC. “And in my view with this very low unemployment rate, with wages rising, with the inflation rate staying close to the Fed’s target, I think we’re in a good place relative to the mandates that we are asked to achieve
Powell on Friday obliquely acknowledged those concerns.
He also painted a rosy picture of the U.S. economy and “this historically strong job market” amid the rising chatter about a looming recession.
“Thus, after a decade of progress toward maximum employment and price stability, the economy is close to both goals,” he said.
“The key question raised by this era, then, is how we can best support maximum employment and price stability in a world with a low neutral interest rate,” Powell said.
“But fitting trade policy uncertainty into this framework is a new challenge,” Powell said. “There are… no recent precedents to guide any policy response to the current situation. Moreover, while monetary policy is a powerful tool that works to support consumer spending, business investment, and public confidence, it cannot provide a settled rulebook for international trade.
“We can, however, try to look through what may be passing events, focus on how trade developments are affecting the outlook, and adjust policy to promote our objectives,” he added.