–Says Wouldn’t Resign if Trump Asked, But Would Meet
–‘We Will Be Patient’ as Economy Evolves
By Denny Gulino
ATLANTA (MaceNews) – Federal Reserve Chairman Jerome Powell Friday reassured the markets that a strong jobs market, like that reflected in the morning’s 312,000 new payroll slots reported for December, is not inflationary – and that “No,” he would not resign if President Trump asked him to.
Among other reassurances he offered was that when he said normalization of the balance sheet is on “auto pilot,” he was not altering the Fed’s promise as far back as 2014 to change the way quantitative easing is being reversed if appropriate.
As Powell spoke, at the American Economic Association annual meeting, the stock markets were largely retracing the previous day’s huge losses, a rebound that began early in the session and which Powell’s remarks only seemed to accelerate.
Appearing with his most recent two predecessors, Janet Yellen and Ben Bernanke, Powell suggested the Federal Open Market Committee is prepared to watch the volatile markets with patience, but was not explicit on how soon to expect the next rate increase.
“U.S. data seems to be on track to sustain good momentum,” Powell said, while noting the latest ISM was soft. At the same time “China’s consumers seem to be falling back” as evidenced by Apple’s earnings warning. China’s slowing, he added, “seemed to be spilling over” to other Asia economies. China’s leadership, he said, is responding with stimulus measures.
Overall, he saw “good data,” but financial markets are still concerned with “downside risks,” like trade disputes, “policy uncertainty” in Washington and “other things.” With such “mixed signals,” the strong data and the financial market concern, the Fed policy becomes one “very much of risk management,” he said.
“There is no pre-set path for policy,” he continued. With “muted” inflation readings, “we will be patient as we watch to see how the economy evolves.” The Fed, he said, “is always prepared to shift the stance of policy and shift it significantly if necessary.”
He directly contradicted the conventional wisdom in many quarters that when wages increase, inflation is soon to follow. “Wages going up is not necessarily inflationary,” he said. He said there is “tremendous uncertainty” as to the “natural rate” of unemployment and the Fed is willing to “revisit” its views of what is likely to be inflationary. The Phillips Curve relationship between employment and inflation has “weakened significantly” since the 1960s but still exists to some extent, he said – and a stronger linkage could return.
As to the pace of normalization of the Fed’s balance sheet, in 2014, Powell went on, “We said that we would be prepared to adjust our normalization plans as appropriate to achieve our goals” and if it ever appears the reversal of quantitative easing was doing some damage “we wouldn’t hesitate” to change it. Meanwhile, he said referring to Yellen’s previous description, it’s like “watching paint dry.”
Powell said that amid President Trump’s continual criticism that he has not heard from the White House directly. He added that presidents and central bank chiefs occasionally do meet. At the White House, economic policy coordinator Larry Kudlow told reporters that both sides want to get together. Asked if he would resign should Trump ask, Powell answered simply, “No.”
Both Yellen and Bernanke said they found the criticism concerning and if it continued, Yellen said, it could “undermine” the central bank.