May 31, 2020

Fed Chair Paints Rosy Economic Picture but Says Risks Remain

Mr. Powell said during his testimony that negative rates “would certainly not be appropriate in the current environment” because the United States economy “is in a strong position.”

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 noted.

While the Fed does not play a role in setting trade policy, “this is one of those things that we called out as something we are aware of — and something that is weighing on business sentiment and ultimately the economy,” he later added.

Despite those risks, the Fed chief expressed optimism about the state of the American economy, which is in the 11th year of a record-long expansion.

“The pace of job gains has eased this year but remains solid,” he said in his opening remarks. “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 added that while the Fed was reviewing its recession-fighting tools, it would be important for Congress to step up come the next downturn. And he indicated that, though many in the economics profession had become more comfortable with large budget deficits, he did 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 said.

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