–Probability of a Recession This Year ‘Not Elevated’
By Denny Gulino
WASHINGTON (MaceNews) – Federal Reserve Chairman Jerome Powell Thursday repeated reassuring words like “patient,” that persuaded markets there will be no rate hike late this month and fewer than earlier expected for the balance of the year.
As the minutes released Wednesday of the mid-December Federal Open Market Committee showed, “patient” was the characterization agreed upon by the board members and regional bank presidents, not something added later by Powell to reflect the concern of the markets about slow growth.
Interviewed by co-founder of the Carlyle Group David Rubenstein, head of the Economic Club of Washington, Powell mostly repeated his views expressed before the American Economic Association in Atlanta last week, that, “We see continued momentum from the data right through the end of this year.” Again he acknowledged that, at least for a while, the markets have not been in total agreement.
“We see the financial markets expressing the view concerning downside risks really associated with global growth and with trade,” he continued.
“How do we put those two different signals together?” he asked. “I think where that leaves us, particularly with inflation low and under control, is we have the ability to be patient” while the data reveal “which of these two narratives” unfolds.
So what is the “plan” for interest rate hikes this year?” Rubenstein asked. “There is no such plan,” Powell answered. “We don’t actually vote on a path or a plan.” Views of how many rate increases to expect are merely based on the accumulation of views expressed in “dothe t plot”projections put together quarterly by the board members and regional bank presidents. After a “robust discussion” among the various factors the FOMC participants vote on a particular decision for a particular day.
Powell said he speaks to every FOMC participant “in great detail” before every meeting. Does he lobby them to adopt his views? “I really don’t. I really respect their right of each individual participant to make up his or her own mind and express their views,” placing them on the record, he said.
Although it hasn’t happened yet under his reign, he continued, were a participant’s views to depart from the consensus, more likely the FOMC concluding statement would be changed to include the different view. A participant can always dissent and spell out why, he reminded.
Does the criticism from President Trump bother him? Powell answered the question much as he did last week, with a simple “No.” Last week, before the AEA, Powell used the “No” to say he would not resign even if President Trump asked him to.
Powell also repeated that Fed chairs do on occasion meet with presidents but he, like last week, had nothing to announce at this time.
Powell said the fact that markets see a downside despite positive data is not unusual. He repeated that, “It gives us the opportunity to patiently watch,” and when a change is indicated, the Fed can accomplish that by applying “risk management principles” and “flexibly and quickly move policy, significantly.”
Government shutdowns “typically don’t last very long” and usually the economy “doesn’t reflect much damage,” he said. A longer shutdown might be different. When data from government agencies that are not operating is missing, the Fed relies on data it collects itself.
Powell said he does not see a U.S. recession “in the near term” and his “principal worry is global growth.” He continued. “Recessions are most often caused by two things, one is that inflation is high enough that the Fed has to hit the brakes. We don’t see that.”
The other recession trigger, seen most often in recent years “in the last several cycles” are financial imbalances, like the “asset bubbles, the housing bubble, the dot-com bubble or just excessive leverage, like you saw in the sub-prime mortgage area.” The possibility of a recession this year “is not elevated.”
With the principal worry being global growth, in a globally interrelated economy, inflation is “rooted” near 2% and not a special concern.
Lower oil prices have a moderately beneficial effect on the economy, he said.
On China, where the economy “has slowed down,” he sees “the Chinese authorities are doing repeated rounds” of things to stimulate the economy. So he said he sees China enjoying “another year of solid growth.”
Tariffs so far have not done much damage either to the Chinese or the American economy. Powell said. He repeated that if tariffs help open up the trading system so that it ends up with fewer tariffs, that would be beneficial, but if they just increase the amount of protectionism in the global system, the effect would turn out to be negative.
Powell said that while he is “very worried” about the nation’s mounting debt that subject is a long-term issue while the Fed concentrates on the business cycle, “our frame of reference” in the medium term.
The Fed’s balance sheet will keep shrinking to “no larger than necessary to conduct monetary policy,” which will be “substantially smaller than it is now but nowhere near what it was before,” he said, because there is a lot more currency in circulation now. Quantitative easing worked well, he said, “if you don’t expect perfection.”
Powell confirmed he has a curious ability to quickly read and pronounce words and names backwards, something he said, “I was born with.” He said he tries hard not to use “fedspeak” in communicating with the public yet it is a necessary kind of jargon when economists and experts speak to each other.
“I actually enjoy meeting with the public,” he said, and believe it’s important to meet with a variety of people that reflects the real makeup of society. He said he meets with members of Congress frequently and is available to any member who asks..
Powell said as a Treasury department official he came to the attention of then Secretary Tim Geithner by amassing arguments in favor of raising the debt limit at the time, which led to his first appointment to the Fed.