Fed chair sends coronavirus warning, Trump unhappy with rates stance


“Some of the uncertainties around trade have diminished recently, but risks to the outlook remain,” Powell said. Still “the current stance of monetary policy will likely remain appropriate” as long as incoming economic information remains in line with the Fed’s outlook.

When asked by lawmakers about the coronavirus, Powell said the Fed is asking questions including “What will be the effects on the US economy? Will they be persistent? Will they be material?”

“We know that there will be some — very likely be some effects on the United States,” he said. “I think it’s just too early to say, we have to resist the temptation to speculate on this.”

Powell added that “the Chinese government has obviously taken very strong measures” in terms of containing the virus. “The People’s Bank of China has done a number of things to support economic activity. I think you can expect the Chinese government to do lots of things to support economic activity.”

The Fed’s policy rate is now set in a range of 1.5 per cent to 1.75 per cent, after officials cut it three times last year to insulate the economy against wobbling global growth and fallout from President Donald Trump’s trade battles.

The housing market perked up as the Fed made its cuts, and the economy as a whole is growing steadily through a record 11th year of expansion.

Despite that, Powell has remained the subject of near-constant White House complaints. Trump told Fox Business Network on Monday that “we should have a lower interest rate” and said Powell “let me down. I think he’s done the wrong thing.”

As Powell testified Tuesday, Trump commented on his performance on Twitter, seemingly blaming the Fed Chair as stock prices drifted downward.

“When Jerome Powell started his testimony today, the Dow was up 125, & heading higher,” Trump wrote on Twitter. “As he spoke it drifted steadily downward, as usual, and is now at -15. Germany & other countries get paid to borrow money. We are more prime, but Fed Rate is too high, Dollar tough on exports.”

The Fed operates independently of the White House but answers to Congress, which has given it the freedom to pursue its two goals — stable inflation and maximum employment — as it sees fit.

The President said the Fed chair is sending markets lower with his rates stance.Credit:AP

Powell has met extensively with lawmakers from both the House and the Senate, and he tends to get a comparatively welcoming reception during his visits to Capitol Hill.

A good relationship with Congress could prove essential in the next recession. Interest rates have fallen across advanced economies as the population has aged and productivity growth has slowed, which means that the Fed will likely have less room to cut borrowing costs to coax the economy back to life in future downturns.

That means “it would be important for fiscal policy to help support the economy if it weakens,” according to Powell’s remarks. He plans to tie that point to a pet topic of his: the size of the government’s debt.

“Putting the federal budget on a sustainable path when the economy is strong would help ensure that policymakers have the space to use fiscal policy to assist in stabilising the economy during a downturn,” he said.

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“A more sustainable federal budget could also support the economy’s growth over the long term.”

The budget deficit topped $US1 trillion ($1.5 trillion) in 2019, and the Congressional Budget Office expects trillion-dollar deficits for the next several years.

The New York Times

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