US Federal Reserve Chairman Jerome Powell made it clear that he and his colleagues are in no hurry to adjust interest rates as growth slows and inflation stays muted.
In a speech late on Friday in Stanford, California, Powell did not mention the dismal US employment report for last month released earlier in the day, saying only that measures of the labor market “look as favorable as they have in many decades” before reiterating the Fed’s mantra on being patient.
“Despite this favorable picture, we have seen some cross-currents in recent months,” he said in the prepared remarks.
“With nothing in the outlook demanding an immediate policy response and particularly given muted inflation pressures, the committee has adopted a patient, wait-and-see approach to considering any alteration in the stance of policy,” he said.
The rate-setting Federal Open Market Committee (FOMC) is “well along in our discussions of a plan to conclude balance-sheet runoff later this year,” he said.
Powell’s remarks follow a spate of gloomy economic developments in the US and elsewhere that are validating the Fed’s decision earlier this year to put interest-rate moves on hold for the time being after hiking four times last year.
The US Department of Labor reported that employers added just 20,000 new jobs last month, the fewest since September 2017 and well below economists’ estimates.
The outlook outside the US also took a hit this week as China lowered its goal for growth this year to a range of 6 to 6.5 percent, while the European Central Bank slashed its forecast for this year’s growth from 1.7 percent to 1.1 percent.
US stocks fell more than 2 percent on the week.
Responding to questions after his speech, Powell said that inflation in the US is low, stable and does not react much to slack in the economy — the product of economic changes and credibility in the Fed built up over the decades that needs to be maintained.
Economies around the world have slowed in the past six months, he said, citing western Europe, China and the US.
Downside risks to the outlook have increased, he said, citing Brexit and uncertainty around trade policy.
Powell’s speech marked the last substantive public remarks from a Fed official before the FOMC convenes March 19 and 20 to decide the next move on monetary policy after offering new economic forecasts and rate projections.
No rate move is expected amid concerns such as those raised on Thursday by Fed Governor Lael Brainard, who said that a weakening economic outlook in the US and abroad argue for a “softer” path for interest rates than previously envisioned.
Powell devoted part of his prepared remarks to the importance of maintaining trust in public institutions. The US central bank has come under scrutiny from US President Donald Trump, who has complained about Powell’s campaign to return rates to a more normal setting.
In another nod to post-crisis “normalization,” Powell said that he has asked a group of his colleagues to review the role of interest-rate projections that are published quarterly, or the Fed’s so-called “dot plot.”
The tool has gathered even more attention from economists and investors as the central bank has reduced the amount of forward-looking guidance that it provides to the public through its policy statements in that past few years.
However, it does a poor job of conveying the level of risks attached to those projections, Powell said.
“Returning to a world of little or no explicit forward guidance in the FOMC’s post-meeting statement presents a challenge, for the dot plot has, on occasion, been a source of confusion,” he said. “We will need to find other ways to address the collateral confusion that sometimes surrounds the dots.”
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