US Federal Reserve Chairman Jerome Powell on Thursday called the nation’s economy a “star” performer and voiced solid confidence that its record expansion would stay on track.
“Our forecast is, and our expectation very much is, one of continued moderate growth,” Powell told the US House of Representatives Budget Committee in Washington.
“The US economy is the star economy these days,” he said during the second day of testimony before US Congress. “There is no reason to think that I could see that the probability of a recession is at all elevated at this time.”
Powell’s remarks reinforce the sense that officials have done enough to keep the economy on track after three interest rate cuts this year and that monetary policy is probably now on prolonged hold as long as the US outlook remains favorable.
The US central bank sees the moves as insurance against a slowdown in global growth and a slump in business investment arising from uncertainty over trade policies.
US equities have advanced steadily this year and are hovering near all-time highs.
“The Fed has made a major move in 2019, and now it makes sense to wait and see how the economy responds during the fourth quarter here and into 2020,” St Louis Federal Reserve President James Bullard told reporters later on Thursday after a speech in Louisville, Kentucky.
“Even if you got some data that surprised in this environment, you might make the argument we have been preemptive already,” Bullard said, signaling a high bar for another interest rate cut.
Investors have got the message.
Interest rate futures signal they see rates on hold at least through the middle of next year and another quarter point of easing is not fully priced in until September.
The Fed’s latest cut on Oct. 30 lowered the target range for its benchmark policy rate to between 1.5 percent and 1.75 percent.
Some members of the Fed have voiced discomfort with rates that low with unemployment at about a 50-year trough of 3.6 percent, citing financial stability concerns, but Powell played down the risks of an overheated economy.
This expansion is “notable” for its lack of sectors that are “really hot,” such as the technology sector or housing markets, during the past two business cycles, he said.
“I would say this expansion is on a sustainable footing,” Powell said. “We don’t see the kinds of warning signs that appeared in other cycles yet.”
The same goes for financial markets, which “don’t have this notable buildup of leverage broadly across the economy, which is troubling from a financial-stability standpoint,” he said. “There is no reason why it can’t last, at the risk of jinxing us, in principle there is no reason to think that I can see that the probability of a downturn is at all elevated.”
Economists surveyed by Bloomberg forecast growth of 1.8 percent and 1.9 percent next year and in 2021 respectively, while Fed officials forecast 2 percent and 1.9 percent respectively, according to their median estimate in September.
Dallas Federal Reserve President Robert Kaplan agreed, saying in Stephenville, Texas, that the US has a good chance for 2 percent economic growth next year, with consumers in good shape and the labor market very tight.
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