Fed’s Powell says US economy in ‘good place’ at moment
WASHINGTON-The Associated Press
Federal Reserve Chairman Jerome Powell said on July 12 that the economy is in a “good place” at the moment with low unemployment and inflation rising toward the Fed’s optimal range. But he says rising trade tensions and higher tariffs could end up being a drag on growth.
In an interview for American Public Media’s “Marketplace” radio program, Powell gave an upbeat assessment of the economy, in remarks signaling that the central bank’s current pace of gradual interest rate increases should continue. The Fed has raised rates twice this year and is projecting two more rate hikes before the year is over.
“I think the economy’s in a really good place,” Powell said, noting that unemployment, currently at 4 percent, is at its lowest point in nearly two decades.
“This strengthening, tightening labor market that you know we’ve been supporting with low interest rates has really been working for American workers and families.”
Powell said that inflation, after a prolonged period of falling below the Fed’s 2 percent target, has in recent months finally touched that goal, although he cautioned that he did not want to declare victory yet on the price front.
“Inflation has very gradually moved up and it’s now just touching 2 percent. So we’re really close to our target,” Powell said. “I wouldn’t say we’ve fully achieved it yet. We’re not declaring victory there. We want inflation to be symmetrically around 2 percent, so just kind of reaching up and touching it once doesn’t fulfill that goal.”
On trade, Powell said that Fed officials are hearing a “rising level of concern” from business executives following the tough talk from the Trump administration, which has imposed penalty tariffs on a number of countries in an effort to open markets for U.S. goods. The effort has provoked retaliation, and now the world’s two biggest economies, the United States and China, are in a full-blown trade war.
Powell said the administration has said it is trying to ultimately achieve lower tariffs by forcing countries to reduce barriers to U.S. goods. He said that would be a good thing, but if the current trade tensions wind up with higher tariffs on a wide range of goods and services, “that could be a negative for our economy.”
The Fed does not have a role in trade policy but will take into account the results of the trade battles in determining where to set interest rates, he said.
Powell signaled that the Fed expects to keep raising rates at the gradual pace it has been following since it started to boost rates after seven years of keeping them at a record low near zero. It raised rates once in both 2015 and 2016 and then three times last year and so far two times this year.
“I’m very pleased with the results,” Powell said.
“We’re returning rates to a more normal level. If we leave rates too low for too long, then we can have too high inflation or we can have asset bubbles or housing bubbles. If we move too quickly, then we can unintentionally put the economy into a recession .... So we’re always balancing these two things.”
Powell was tapped by President Donald Trump to succeed Janet Yellen in February as Fed chairman after Trump decided not to offer Yellen a second term. Trump during the campaign was highly critical of the Federal Reserve, accusing officials of keeping rates at ultra-low levels to favor Democrats.
While Trump has not attacked the Fed since becoming president, Larry Kudlow, his chief economic adviser, said in a recent interview that he hopes the Fed would raise interest rates “very slowly,” comments that were seen as breaking more than two decades of precedent where the White House has refrained from commenting on Fed policies.
But Powell said he was not concerned that the Trump administration might try to exert pressure to influence the Fed’s actions on interest rates.
“We have a long tradition here of conducting policy in a particular way and that way is independent of all political concerns,” Powell said. “We do our work in a strictly nonpolitical way, based detailed analysis.”
Powell, who joined the Fed as a board member in 2012, has been chairman for five months now. He announced in June that he planned next year to double the number of press conferences the chairman holds from four to eight, one after each meeting the central bank holds.
He said his decision to grant the interview on July 12 was part of an effort to make the central bank more transparent.