By Jerry Kronenberg
NEW HAVEN, Conn. (MaceNews) – Federal Reserve Vice Chairman Randal Quarles hinted Friday the central bank’s rate cut this week could be the last one for a while.
Quarles said in a speech at Yale University that current monetary policy is “likely to remain appropriate as long as incoming information about the economy continues to be broadly consistent with our outlook of moderate economic growth.”
“Economic conditions are currently very close to meeting [the] Federal Open Market Committee’s dual-mandate objectives of maximum sustainable employment and price stability,” Quarles said in remarks to the William F. Buckley Jr. Program at Yale University.
The FOMC cut its benchmark federal funds rate by a quarter point Wednesday to a 1.5 percent-to-1.75-percent range, marking the third such easing this year. The move came despite continued signs of U.S. economic strength, such as Friday’s report that the economy created 128,000 non-farm jobs in October – well above the roughly 85,000 analysts had expected.
Quarles said he “was surprised — I think most observers were surprised — that notwithstanding the General Motors strike, the employment figures were as strong as they were.
“The employment rate has been running near a 50-year low [and] the proportion of the population currently employed is close to its highest level in a decade,” the Fed vice chair said.
He added that “encouragingly, labor-force participation has held up as the tight labor market has motivated workers to either join or remain in the labor force — halting at least for the time being what had been a longstanding downward trend.”
Quarles said the strong job market has “in turn supported economic growth,” noting that personal consumption expenditures have grown 2.5 percent over the past four quarters. “That’s a healthy pace by historical standards [and] a major contributor to overall growth, since consumption represents about two-thirds of economic activity,” he said.
As for inflation, the Fed vice chair noted that both the core and overall PCE indices have run beneath the central bank’s 2% target over the 12 months ended Sept. 30 — coming in a 1.7% and 1.3%, respectively.
“While those readings are below our 2% inflation objective, they’re fairly close — and my assessment is that inflation will inch toward our objective in the coming months,” Quarles said.
However, the Fed vice chair added that he saw two “worrying signs in the recent data that suggest some headwinds are holding back growth”:
- A Soft Global Economy. Quarles warned that weak growth among America’s trading partners could hurt the U.S. economy. He noted that the International Monetary Fund projects 2019’s total global growth will be the lowest in more than a decade. “Partly as a consequence of weak foreign growth, U.S. exports have been flat over the past year,” the Fed executive said.
- Weak Business Investment. Soft U.S. business investment is “a particular concern,” Quarles said. He pointed out that after strong showings in 017 and early 2018, business fixed investment fell in 2019’s second and third quarter. The Fed vice chair said it’s likely that business investment has stalled due to “elevated uncertainty for foreign growth generally, but also especially for trade developments.”