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| Powell Highlights Fed’s Limits. Trump Labels Him an ‘Enemy.’ | |
| (32 minutes later) | |
| Federal Reserve Chair Jerome H. Powell on Friday kept future interest rate cuts squarely on the table but suggested the central bank is limited in its ability to counteract President Trump’s trade policies, which are stoking uncertainty and posing risks to the economic outlook. | Federal Reserve Chair Jerome H. Powell on Friday kept future interest rate cuts squarely on the table but suggested the central bank is limited in its ability to counteract President Trump’s trade policies, which are stoking uncertainty and posing risks to the economic outlook. |
| “While monetary policy is a powerful tool that works to support consumer spending, business investment, and public confidence, it cannot provide a settled rule book for international trade,” Mr. Powell, speaking in Jackson, Wyo., said at the Federal Reserve Bank of Kansas City’s annual symposium. | “While monetary policy is a powerful tool that works to support consumer spending, business investment, and public confidence, it cannot provide a settled rule book for international trade,” Mr. Powell, speaking in Jackson, Wyo., said at the Federal Reserve Bank of Kansas City’s annual symposium. |
| “Our challenge now is to do what monetary policy can do to sustain the expansion” to achieve the Fed’s goals of low unemployment and stable inflation, he said earlier in the speech. | “Our challenge now is to do what monetary policy can do to sustain the expansion” to achieve the Fed’s goals of low unemployment and stable inflation, he said earlier in the speech. |
| Mr. Powell’s remarks indicate that the Fed, which in July cut interest rates for the first time in a decade, remains willing to cut again in order to keep the economy growing. | Mr. Powell’s remarks indicate that the Fed, which in July cut interest rates for the first time in a decade, remains willing to cut again in order to keep the economy growing. |
| But his reluctance to clarify the timing or size of any move highlights the central bank’s predicament: While unemployment is low and consumer spending is strong, Mr. Trump’s trade conflict is stoking uncertainty, weighing on manufacturing, and roiling markets. And the Fed is limited in its ability to resolve unpredictability. | But his reluctance to clarify the timing or size of any move highlights the central bank’s predicament: While unemployment is low and consumer spending is strong, Mr. Trump’s trade conflict is stoking uncertainty, weighing on manufacturing, and roiling markets. And the Fed is limited in its ability to resolve unpredictability. |
| “Trade policy uncertainty seems to be playing a role in the global slowdown and in weak manufacturing and capital spending in the United States,” Mr. Powell said, adding that there are “no recent precedents to guide any policy response to the current situation.” | “Trade policy uncertainty seems to be playing a role in the global slowdown and in weak manufacturing and capital spending in the United States,” Mr. Powell said, adding that there are “no recent precedents to guide any policy response to the current situation.” |
| His comments came as China announced on Friday that it would retaliate against Mr. Trump’s next round of tariffs by increasing taxes on $75 billion worth of American products, including agricultural products, crude oil and cars. Both countries plan to up their levies in September and December, which could exacerbate the economic harm from a trade war that is already causing financial pain across the globe. | His comments came as China announced on Friday that it would retaliate against Mr. Trump’s next round of tariffs by increasing taxes on $75 billion worth of American products, including agricultural products, crude oil and cars. Both countries plan to up their levies in September and December, which could exacerbate the economic harm from a trade war that is already causing financial pain across the globe. |
| While Mr. Powell did not guarantee that future cuts are coming, he noted that the weeks since the Fed’s July 31 meeting “have been eventful.” The day after the Fed meeting, Mr. Trump announced that the United States would tax another $300 billion worth of Chinese products and there has been further evidence of a global slowdown. Financial markets have reacted to the “complex, turbulent picture,” Mr. Powell noted. | |
| He said the Fed is “carefully watching developments” as they assess the implications for the economic outlook and monetary policy, and maintained a pledge to “act as appropriate to sustain the expansion.” | |
| Against that backdrop, some members of the policy-setting Federal Open Market Committee support rate cuts to shore up United States economic growth, while others want to adopt a wait-and-see approach to monitor how the situation plays out. | Against that backdrop, some members of the policy-setting Federal Open Market Committee support rate cuts to shore up United States economic growth, while others want to adopt a wait-and-see approach to monitor how the situation plays out. |
| “Risk management enters our decision making because of both the uncertainty about the effects of recent developments and the uncertainty we face regarding structural aspects of the economy,” Mr. Powell said. | “Risk management enters our decision making because of both the uncertainty about the effects of recent developments and the uncertainty we face regarding structural aspects of the economy,” Mr. Powell said. |
| Mr. Trump, who regularly accuses the Fed of slowing the economy by raising rates in 2018 and has urged it to cut aggressively, lashed out at Mr. Powell after the remarks. | Mr. Trump, who regularly accuses the Fed of slowing the economy by raising rates in 2018 and has urged it to cut aggressively, lashed out at Mr. Powell after the remarks. |
| “As usual, the Fed did NOTHING!” Mr. Trump said in a tweet. “My only question is, who is our bigger enemy, Jay Powel or Chairman Xi?,” the president wrote, a reference to Chinese President Xi Jinping. | “As usual, the Fed did NOTHING!” Mr. Trump said in a tweet. “My only question is, who is our bigger enemy, Jay Powel or Chairman Xi?,” the president wrote, a reference to Chinese President Xi Jinping. |
| Mr. Trump, who appointed Mr. Powell to a four-year term, has said the Fed should use monetary policy to create a more even playing field with trading partners like China and Germany, which he believes are weakening their currencies and lowering rates to gain an economic advantage. | Mr. Trump, who appointed Mr. Powell to a four-year term, has said the Fed should use monetary policy to create a more even playing field with trading partners like China and Germany, which he believes are weakening their currencies and lowering rates to gain an economic advantage. |
| “Our Federal Reserve does not allow us to do what we must do,” he said in a tweet on Thursday, adding that they “move like quicksand. Fight or go home!” | “Our Federal Reserve does not allow us to do what we must do,” he said in a tweet on Thursday, adding that they “move like quicksand. Fight or go home!” |
| Investors fully expect a rate cut in September and anticipate another before the end of the year, based on market pricing measured by the CME Group. | Investors fully expect a rate cut in September and anticipate another before the end of the year, based on market pricing measured by the CME Group. |
| Fed officials often point to two mid-1990s rate cutting cycles as rough templates for how the central bank is approaching policy now. In both cases, the Fed cut rates by 75 basis points to get the economy through rough patches. | Fed officials often point to two mid-1990s rate cutting cycles as rough templates for how the central bank is approaching policy now. In both cases, the Fed cut rates by 75 basis points to get the economy through rough patches. |
| Mr. Powell referenced those episodes in his remarks Friday, noting that “the Fed was cutting, not raising, rates in the months prior to the end of the first two expansions in this era, and the ensuing recessions were mild by historical standards.” | Mr. Powell referenced those episodes in his remarks Friday, noting that “the Fed was cutting, not raising, rates in the months prior to the end of the first two expansions in this era, and the ensuing recessions were mild by historical standards.” |
| Federal Reserve Bank of St. Louis President James Bullard, speaking earlier on Friday on Bloomberg Television, called those instances a “great baseline” to reference for policy now, though he did not commit to matching their size. “That’s what they did in the ‘90s, I don’t know where we’ll end up.” | Federal Reserve Bank of St. Louis President James Bullard, speaking earlier on Friday on Bloomberg Television, called those instances a “great baseline” to reference for policy now, though he did not commit to matching their size. “That’s what they did in the ‘90s, I don’t know where we’ll end up.” |
| The Fed is also contending with inflation that has run stubbornly below its 2 percent goal, the level it views as consistent with a healthy economy. The need to return inflation to its goal quickly was one reason that the central bank cut rates in July. | The Fed is also contending with inflation that has run stubbornly below its 2 percent goal, the level it views as consistent with a healthy economy. The need to return inflation to its goal quickly was one reason that the central bank cut rates in July. |
| While policymakers have historically set interest rates to keep very-low unemployment from spurring faster inflation, Mr. Powell’s remarks show how that the calculus is changing. | While policymakers have historically set interest rates to keep very-low unemployment from spurring faster inflation, Mr. Powell’s remarks show how that the calculus is changing. |
| Mr. Powell noted that in the 1990s, the Fed was able to cut rates to support employment “without destabilizing inflation.” At another point in the speech, he said that “low inflation seems to be the problem of this era, not high inflation.” | Mr. Powell noted that in the 1990s, the Fed was able to cut rates to support employment “without destabilizing inflation.” At another point in the speech, he said that “low inflation seems to be the problem of this era, not high inflation.” |