Fed chief's remarks give few clues on rate cut

Federal Reserve chairman Jerome Powell said "the US economy has continued to perform well overall".
Federal Reserve chairman Jerome Powell said "the US economy has continued to perform well overall".

JACKSON HOLE • The United States economy is in a "favourable place" and the Federal Reserve will "act as appropriate" to keep the current economic expansion on track, Fed chairman Jerome Powell said yesterday in remarks that gave few clues about whether the central bank will cut interest rates at its next meeting or not.

Mr Powell, under pressure from President Donald Trump to cut rates soon and deeply, listed a series of economic and geopolitical risks that the Fed is monitoring - many of them, Mr Powell noted, linked to the administration's trade war with China and other countries.

But "the US economy has continued to perform well overall", Mr Powell said in keynote remarks at an annual Fed economic symposium. "Business investment and manufacturing have weakened, but solid job growth and rising wages have been driving robust consumption and supporting moderate overall growth."

He said that if the trade wars have disrupted business investment and confidence and contributed to "deteriorating" global growth, the Fed could not set all that right through monetary policy.

There are "no recent precedents to guide any policy response to the current situation", he said, adding that monetary policy "cannot provide a settled rule book for international trade".

Mr Powell said that between that, the possibility of a hard Brexit, tension in Hong Kong, an economic slowdown in places like Germany as well as other overseas troubles, the Fed needed to "look through" short-term turbulence and focus on how the US is performing.

He did note that rate cuts in the 1990s had helped to keep an expansion intact.

But the overall tone of his statement may disappoint investors expecting the Fed to cut rates at its meeting next month and possibly several more times this year. The central bank reduced rates last month in what Mr Powell referred to as a mid-cycle adjustment.

The statement is also likely to disappoint Mr Trump, both in focusing on the impact that trade uncertainty is having on the global economy and in not giving a clear signal that more cuts are coming.

Mr Powell said that the Fed must "look through what may be passing events, focus on how trade developments are affecting the outlook, and adjust policy to promote our objectives" of 2 per cent inflation and strong employment.

REUTERS

A version of this article appeared in the print edition of The Straits Times on August 24, 2019, with the headline 'Fed chief's remarks give few clues on rate cut'. Print Edition | Subscribe