Fed Chair Paints Rosy Economic Picture, but Says Risks Remain

WASHINGTON — Jerome H. Powell, the Federal Reserve chair, will paint an optimistic picture of the United States economy in testimony before Congress on Wednesday, though he warns that threats to the outlook persist.

“In particular, sluggish growth abroad and trade developments have weighed on the economy and pose ongoing risks,” Mr. Powell will say, according to prepared remarks.

The United States’ central bank has cut interest rates three times since late July, as tensions from President Trump’s trade war and slowing growth abroad unnerved companies and weighed on investment. Lower borrowing costs have helped to cheapen mortgage costs and could keep consumers, the main engine of economic growth, spending.

But if trade tensions ease as many investors now expect and as the effects of those rate cuts play out, the Fed has indicated that it may shift to a wait-and-see mode as it tries to gauge whether further action is necessary. Mr. Powell is upholding that message.

“We see the current stance of monetary policy as likely to remain appropriate as long as incoming information about the economy remains broadly consistent with our outlook,” he reiterates.

The Fed Chair, who is testifying before Congress’ Joint Economic Committee, is using the speech to emphasize the central bank’s freedom from the political process.

“Congress has given us an important degree of independence so that we can effectively pursue our statutory goals based on facts and objective analysis,” Mr. Powell says. “We appreciate that our independence brings with it an obligation for transparency and accountability.”

That independence been under strain over the past year, with Mr. Trump regularly attacking the Fed for not lowering borrowing costs quickly enough and blaming the central bank for any economic weakness. On Tuesday, Mr. Trump once again criticized the Fed during a speech before the Economic Club of New York, accusing it of putting the United States at a competitive disadvantage to other nations.

“We are actively competing with nations who openly cut interest rates so that now many are actually getting paid when they pay off their loan, known as negative interest,” Mr. Trump said, adding “I want some of that money.”

He also said that “we all make mistakes.” It was not obvious whether he was referring to the Fed’s interest rate policy or his own decision to appoint Mr. Powell.

While Mr. Trump has pointed at the Fed for any lackluster economic or stock market performance, Mr. Powell suggested a different culprit — the president’s own trade war.

A slowdown in gross domestic product growth in the third quarter partly reflected an autoworker strike but “also reflects weakness in business investment, which is being restrained by sluggish growth abroad and trade developments,” Mr. Powell notes.

Despite those risks, the Fed chief paints an overall positive picture of the economy, which is in the eleventh year of a record-long expansion. Unemployment is hovering near its lowest level in 50 years and wages are gradually rising.
“The pace of job gains has eased this year but remains solid” he says, adding that “looking ahead, my colleagues and I see a sustained expansion of economic activity, a strong labor market, and inflation near our symmetric 2 percent objective as most likely.”

Mr. Powell adds that while the Fed is currently reviewing its recession-fighting tools, it will be important for Congress to step up come the next downturn. And he indicates that, though many in the economics profession have become more comfortable with large budget deficits, he does not rank among them.

“Putting the federal budget on a sustainable path would aid the long-term vigor of the U.S. economy and help ensure that policymakers have the space to use fiscal policy to assist in stabilizing the economy if it weakens,” he says.

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