Powell signals pause in cuts
WASHINGTON — Federal Reserve Chairman Jerome Powell said Wednesday that the Fed is likely to keep its benchmark short-term interest rate unchanged in the coming months, unless the economy shows signs of worsening.
But for now, in testimony before a congressional panel, Powell expressed optimism about the U.S. economy and said he expects it will grow at a solid pace, though it still faces risks from slower growth overseas and trade tensions.
“Looking ahead, my colleagues and I see a sustained expansion of economic activity, a strong labor market, and inflation near our symmetric 2% objective as most likely,” Powell said before Congress’ Joint Economic Committee.
Fed policymakers are unlikely to cut rates, Powell said, unless the economy slows enough to cause them to make a “material reassessment” of their outlook.
The Fed cut short-term rates last month for the third time this year, to a range of 1.5% to 1.75%.
“It now looks increasingly likely that the Fed will move to the sidelines for an extended period,” said Andrew Hunter, an economist at Capital Economics, a forecasting firm.
Still, when asked if he expected rates to remain unchanged over the next year, Powell said, “I wouldn’t say that at all.”
Powell’s testimony comes a day after President Donald Trump took credit for an “economic boom” and attacked the Fed for not cutting interest rates further. Powell and other Fed officials, however, argue that their rate cuts, by lowering borrowing costs on mortgages and other loans, have spurred home sales and boosted the economy.
Powell was asked about negative interest rates, which Trump also called for Tuesday, and responded that they “would certainly not be appropriate in the current environment.”
Negative rates occur “at times when growth is quite low, and inflation is quite low, and you really don’t see that here,” Powell said.
Other Fed officials have also questioned whether cutting rates below zero has actually succeeded in boosting growth in places like Europe and Japan, where central banks have pushed rates into negative territory.
Despite Trump’s attacks, both Republican and Democratic lawmakers took a largely respectful approach to Powell. Several complimented him for the “Fed Listens” events the central bank has held around the country, which have sought input from a range of groups, including unions and nonprofits, on ways the Fed could update its monetary policy framework.