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Fed Chair Jerome Powell Emphasizes Independence as Trump Attacks Persist Fed Chair Powell Weighs Whether Cut Will Be Needed as Risks Loom
(32 minutes later)
Federal Reserve Chair Jerome H. Powell emphasized the central bank’s independence in a speech on Tuesday, sending a reminder that he and his colleagues answer to Congress as President Trump carries on his campaign of criticizing Fed policy. Federal Reserve Chair Jerome H. Powell said the central bank is weighing whether an interest-rate cut will be needed as trade risks stir economic uncertainty and inflation lags. But the Fed chair made clear that the institution considers itself independent from the White House and President Trump, who continues to publicly push for a rate cut.
“The Fed is insulated from short-term political pressures — what is often referred to as our ‘independence,’’’ Mr. Powell said in remarks prepared for delivery at the Council on Foreign Relations in New York. “Congress chose to insulate the Fed this way because it had seen the damage that often arises when policy bends to short-term political interests.” Mr. Powell said the case for a rate cut has strengthened somewhat given economic “crosscurrents have re-emerged, with apparent progress on trade turning to greater uncertainty and with incoming data raising renewed concerns about the strength of the global economy.”
As part of that independence, the central bank is obligated to explain clearly what it is doing and why, Mr. Powell said. He raised the topic in the context of the Federal Reserve Board’s ongoing yearlong review of its policy tools and communications. Still, the remark sends a quiet message that the central bank does not plan to bow to the White House. But he stopped short of saying a cut was guaranteed, noting that the Fed would continue to watch economic events unfold and would avoid reacting to short-term issues.
Mr. Trump has been jawboning the Fed to cut rates and stop shrinking the large portfolio of government bonds that it amassed as it tried to shore up the American economy in the wake of the financial crisis. Mr. Trump on Monday tweeted that the Fed “blew it” by increasing rates last year and has even toyed with the idea of demoting Mr. Powell to the role of governor, according to news reports. Mr. Trump has alternately implied that such a move depends on Mr. Powell’s actions and denied suggesting a demotion. But Mr. Trump said he believes he has the legal authority to do so if he chooses, though his authority is unclear. “The question my colleagues and I are grappling with is whether these uncertainties will continue to weigh on the outlook and thus call for additional policy accommodation,” Mr. Powell said at a Council on Foreign Relations event.
The Fed is watching warily as global trade flows slow, manufacturing indexes sag and confidence gauges wobble amid ongoing uncertainty about Mr. Trump’s trade war. Because interest rates are already historically low, the Fed wants to take a risk-management approach to policy-setting, fending off any softening in growth before it becomes serious.
The fact that inflation has never sustainably hit the Fed’s 2 percent target, formally in place since 2012, heightens the case for moving pre-emptively — rather than waiting and risking a move that comes too late. Inflation came in at just 1.5 percent in the year through April.
“That undershoot looks like it might be more persistent than we had hoped, and that is not a good thing,” Mr. Powell said in a question-and-answer session with Neil Irwin, a senior economic correspondent with The New York Times. “It’s another argument, frankly, for providing more policy accommodation.”
The Fed’s policy conversation is happening against a contentious political backdrop. Mr. Trump has been loudly criticizing the central bank for keeping rates too high, saying that they are weakening growth and putting the United States on an uneven playing field relative to trading partners with lower interest rates. Mr. Powell emphasized the central bank’s independence Tuesday.
“We are a strictlynonpolitical agency,” he said in response to a question about Mr. Trump’s ongoing attacks. “We’re human, we’ll make mistakes,” he added, but “we won’t make mistakes of integrity or character.”
Mr. Trump on Monday tweeted that the Fed “blew it” by increasing rates last year and has even toyed with the idea of demoting Mr. Powell to the role of governor. Mr. Trump has alternately implied that such a move depends on Mr. Powell’s actions and denied suggesting a demotion. He said he believes he has the legal authority to do so if he chooses, though his authority is unclear.
[Mr. Trump’s feud with the Fed is rooted in history.][Mr. Trump’s feud with the Fed is rooted in history.]
Mr. Trump’s attacks have persisted even as the central bank considers cutting rates for the first time since 2008. Seven Fed officials have penciled in a decrease of 0.5 percentage points by the end of the year, and one official expects a 0.25-point move, based on the Federal Reserve’s summary of economic projections, which were released following its June meeting. Politics aside, economic developments have prompted a growing number of Fed officials to expect rate cuts before the end of the year, according to economic projections released following their June 19-20 meeting. Investors in fed funds futures had fully priced in a rate cut next month following that meeting. Stocks indexes fell after Mr. Powell’s speech was released Tuesday, suggesting that his characterization of rate cuts as an “whether” rather than a definite plan disappointed some traders.
Mr. Powell reiterated a cautious stance on Tuesday both in his prepared speech and in a question-and-answer session with Neil Irwin, a senior economic correspondent with The New York Times. Mr. Powell said the Fed must look carefully at how certain factors — including Mr. Trump’s trade war with China — are affecting the United States economy before deciding whether to cut rates. But Mr. Powell’s Fed colleagues are with him as he watches incoming data warily.
Economic “crosscurrents have re-emerged, with apparent progress on trade turning to greater uncertainty and with incoming data raising renewed concerns about the strength of the global economy,” he said. “The question my colleagues and I are grappling with is whether these uncertainties will continue to weigh on the outlook and thus call for additional policy accommodation.”
Mr. Powell repeated that Fed officials “will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion.”
Growth abroad has shown signs of stalling, raising risks to the United States economic outlook. Manufacturing is slowing across economies in Europe and Asia, uncertainty indexes are rising and confidence is wobbling as trade drops off. That pullback owes partly to the ongoing tariff war between the United States and China, which could arrive at a turning point this week, when Mr. Trump is expected to meet with President Xi Jinping at the Group of 20 summit in Japan.
The United States has slapped tariffs on $250 billion worth of goods already, and Mr. Trump has threatened to extend them to another $300 billion of goods — practically all remaining imports from China — if the two nations can’t reach an agreement. This would be the first meeting between the two leaders since talks broke off in May.
“The amount of tariffs that are in place right now are not large enough to represent, itself, a major threat to the economy,” Mr. Powell said. “The concern is more around a loss of confidence or financial market reaction.”
Mr. Powell’s Fed colleagues are with him as he watches incoming data to gauge whether a rate cut is needed.
“The economy had solid momentum, but now it’s peddling against some pretty significant headwinds,” Mary Daly, president of the Federal Reserve Bank of San Francisco, said in an interview with The New York Times on Tuesday. “Let’s watch the next six weeks and see if the data reverse,” and “see how the uncertainty resolves itself as we get more information about trade negotiations, and finally, let’s see what other countries are doing to offset potential weaknesses.”“The economy had solid momentum, but now it’s peddling against some pretty significant headwinds,” Mary Daly, president of the Federal Reserve Bank of San Francisco, said in an interview with The New York Times on Tuesday. “Let’s watch the next six weeks and see if the data reverse,” and “see how the uncertainty resolves itself as we get more information about trade negotiations, and finally, let’s see what other countries are doing to offset potential weaknesses.”
Ms. Daly would not say whether she’s projected rate cuts this year, but said she’s concerned that with more muted growth it might take longer to push inflation back toward the Fed’s 2 percent goal. “The bottom line for me, is that I want to sustain the expansion so that we can also push inflation back up to our target,” Ms. Daly said. Ms. Daly, who is not currently a voting member but participates in discussions about rate policy, would not say whether she’s projected rate cuts this year. But she said she’s concerned that, with more muted growth, it might take longer to push inflation back toward the Fed’s 2 percent goal.
Wage growth is showing signs of slowing, and inflation remains stuck at stubbornly low levels. While some of that shortfall could prove short-lived, several measures of inflation expectations are softening. That increases the risk that price growth remains permanently below the central bank’s goal, which is meant to provide a buffer to ward off economy-harming deflation. “The bottom line for me, is that I want to sustain the expansion so that we can also push inflation back up to our target,” Ms. Daly said.
“That undershoot looks like it might be more persistent than we had hoped, and that is not a good thing,” Mr. Powell said today. “It’s another argument, frankly, for providing more policy accommodation.” Wage growth is showing signs of slowing, and several measures of inflation expectations are softening. That increases the risk that price growth remains permanently below the central bank’s goal, which is meant to provide a buffer to ward off economy-harming deflation.
Growth abroad has also shown signs of stalling. Manufacturing is slowing across economies in Europe and Asia, uncertainty indexes are rising and confidence is wobbling as trade drops off. That pullback owes partly to the ongoing tariff war between the United States and China, which could arrive at a turning point this week, when Mr. Trump is expected to meet with President Xi Jinping at the Group of 20 summit in Japan.
The United States has slapped tariffs on $250 billion worth of goods already, and Mr. Trump has threatened to extend them to another $300 billion of goods — practically all remaining imports from China — if the two nations can’t reach an agreement. This would be the first meeting between the two leaders since talks broke off in May.
“The amount of tariffs that are in place right now are not large enough to represent, itself, a major threat to the economy,” Mr. Powell said today. “The concern is more around a loss of confidence or financial market reaction.”
Mr. Powell also delivered a warning to Facebook, which is developing a new cryptocurrency called Libra, saying the financial product would require rigorous scrutiny. “We’re looking at it very carefully,” he said.