By Adam Smith
BOSTON (MaceNews) – Fed Chairman Jerome Powell, during a speech in Boston Tuesday, painted a rosy picture of the U.S. economy and downplayed concern that low unemployment will lead to accelerated inflation.
But during a question and answer session following his speech to the NABE, Powell warned that a trade war and increased tariffs could change this path for the worse.
“Yes, potential tariffs could increase prices,” Powell said at the National Association for Business Economics’ 60th Annual Meeting, repeating what he had said answering a question last week after the latest Federal Open Market Committee meeting.
This possible bump, however, was one Powell avoided discussing in depth, saying his usual line that the subject of trade is out of his “lane.”
In addition, he said again, it’s “too early to see any changes from trade policy” at this point.
Powell gave no sign he is concerned about inflation and suggested the Fed is ready to react with more frequent rate hikes if inflation rises faster than expected.
“Our first choice would always be the federal funds rate,” Powell said, “that’s what we have experience with over decades and cycles.”
“The question of whether we would start selling assets, the answer is no,” he elaborated, adding that the Fed will stick to its passive current balance-sheet reduction program, “because it’s working very well.”
“I don’t want to send any signal that we will be revisiting that any time soon,” Powell added.
What we learned 10 years ago, Powell was asked, is probably not what we are going to learn in the next 10 years. One of the questions we heard is what tool with the Fed likely use if headline inflation exceeds target?
“If inflation comes up above our target,” he answered, “our first choice would always be to use the federal funds rate or … interest rates. That’s what we have experience with over decades and cycles.”
He continued, “If embedded in that is the question of whether we would start selling assets, the answer is no. We’re going to stick to our balance sheet reduction program, because it’s worked very well.”
Powell concluded, “I would not want to send any signal that we will revisit that any time soon.”
“Fiscal policy is providing real support for demand this year and probably for the next couple of years,” he said, but added that “longer term, we’re not on a sustainable fiscal path and we haven’t been for many years,”again repeating what he said in the post-FOMC news conference.
“It’s a good time to be working on putting our fiscal policy in order.”
During Powell’s talk titled, “The Outlook for Employment and Inflation,” Powell seemed to find little reason to change policy, and examined how the nation’s jobless rate could remain so low without whipping up inflation.
Just the week prior, the Fed moved to raise the target range for the federal funds rate up to 2-1/4 percent.
Powell, in prepared remarks, highlighted the strength of the nation’s economy, which he said, “looks very good.”
“The unemployment rate stands at 3.9 percent, near a 20-year low. Inflation is currently running near the FOMC objective of 2 percent.”
Noting that those measures alone can’t always show an accurate picture of the economy’s health, Powell said that “a wide range of data on jobs and prices supports a positive view.”
Forecasts, he said, also predict the jobless rate staying under 4 percent and inflation sticking near 2 percent through the end of 2020.