Federal Reserve Chairman Jerome Powell said the downside risks to the US economy have increased recently, reinforcing the case among policy makers for somewhat lower interest rates.
“Crosscurrents have reem-erged, with apparent progress on trade turning to greater uncertainty and with incoming data raising renewed concerns about the strength of the global economy,” Powell told the Council on Foreign Relations in New York. “Many FOMC participants judge that the case for somewhat more accommodative policy has strengthened,” he added. His comments echoed those he made last week following the Federal Open Market Committee meeting — a point he underlined before taking questions from the audience.
“The things I say about monetary policy here today are intended to be fully consistent with the message that I delivered” last week, he said.
Stocks in the US initially bounced off lows after Powell’s comments before declining further. Treasury 10-year yields fell back below 2 percent.
A consensus is building that Powell and his colleagues will cut interest rates in coming months, as trade disputes hurt the outlook for the world economy. That’s what investors and analysts now expect — and what President Donald Trump is loudly demanding.
Powell did not mention Trump by name in his opening remarks to the council. But he did highlight the importance of the central bank’s autonomy from political interference.
“The Fed is insulated from short-term political pressures — what is often referred to as our independence,” Powell said. “Congress chose to insulate the Fed this way because it had seen the damage that often arises when policy bends to short-term political interests.”
Asked later about Trump’s attacks, Powell again stressed the benefits to be gained from protecting the central bank from political interference, while acknowledging that policy makers weren’t perfect. “We’re human. We’ll make mistakes,” he added. “But we won’t make mistakes of integrity or character.” Trump has criticised the central bank for making credit more costly last year and for failing to lower interest rates last week. Policy makers “blew it” on June 19 when they kept the benchmark overnight rate unchanged at just under 2.5 percent, Trump tweeted. He compared the Fed to a “stubborn child.”
Powell brushed aside arguments by Trump and others that the Fed had erred in raising rates last year. “A lot changed has changed since December,” he said, noting that forecasts of global growth have come down “substantially.”
Companies recently also have become much more concerned about the impact of trade tensions on their businesses, Powell said. “The limited available evidence we have suggests that investment by businesses has slowed from the pace earlier in the year,” he said.
Some Fed policy makers did advocate for a rate cut at last week’s FOMC meeting, including St. Louis Fed chief James Bullard and the Minneapolis Fed’s Neel Kashkari. They were driven by concern that inflation is stuck below the central bank’s 2 percent target — suggesting that there’s room to stimulate the economy, helping to create more jobs and boost wages, without pushing prices too high.