Federal Reserve Chairman Jerome Powell on Wednesday told Congress that interest rates are on hold absent a material deterioration of the economy. “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 of moderate economic growth, a strong labor market, and inflation near our symmetric 2% objective,” Powell said, in remarks prepared for delivery to the Joint Economic Committee of Congress. Of course, if developments emerge that cause a material reassessment of our outlook, we would respond accordingly. Policy is not on a preset course,” he said.
The Fed has cut interest rates in three quarter-point moves since July, putting the Fed’s benchmark federal funds rate in a range of 1.5%-2%. Powell said this provides “some insurance” against “noteworthy risks” of sluggish growth abroad and “trade developments,” or the uncertainty caused by the Trump administration’s trade fights with China and other major trading partners.
The Fed is also worried about a lingering sense of Americans that inflation will be low going forward, he said. Low inflation expectations have been a leading factor in the weak outlook for Japan and European economies.
“We will continue to monitor these developments and assess their implications for U.S. economic activity and inflation,” he said. Powell told the lawmakers that fiscal policy would be needed to support the economy in any downturn. He warned that the long-term federal budget “is on an unsustainable path.” This might hamstring fiscal policymakers’ willingness and ability to help in any recession, he said. Powell told the committee that the overall level of vulnerabilities facing the financial system “has remained at a moderate level.” Investor appetite for risk is elevated in some asset classes, he said. Debt loads of businesses is historically high but the ratio of household borrowing to income is low relative to pre-crisis level and has been gradually declining in recent years, he said. Stocks were set to open broadly lower on Wednesday after President Donald Trump offered no hints on the timing of an eagerly anticipated “phase one” pact with China.