Fed's Powell expects 'sustained expansion' of U.S. economy

Andrew Cummings
November 14, 2019

The Fed signalled after its October 29-30 meeting that it would probably hold off on any further cuts as long as the economy stays healthy and inflation moves closer to the central bank's target of 2 per cent.

At the end of last month, as the Fed cut its key interest rate a quarter-point, Powell said the economy appears to be in a good place, suggesting monetary policy would pretty much remain unchanged next year. He and other Fed officials have said they believe the cuts are working, as lower borrowing costs have encouraged more Americans to buy homes and splurge on appliances and electronics.

"Our economy is in a strong position", he said.

Powell said the rate cuts were created to support continued growth "and to provide some insurance against ongoing risks". The US economy faces a "new normal" of lower growth, interest rates and inflation and the Fed does not have enough room to tackle a recession, he added.

Washington (CNN Business) Federal Reserve Chairman Jerome Powell on Wednesday depicted a robust U.S. economy with a healthy job market and rising incomes, but warned of "noteworthy risks" that threaten future growth.

The three cuts, which lowered the interest rate the Fed controls to a range of 1.5 per cent to 1.75 per cent, were meant to offset drags from slower global growth and the U.S.

President Trump is not a big fan of Jay Powell's Fed.

After providing that stimulus to the economy, Powell said, "a sustained expansion of economic activity" is the most likely outcome.

Having guided interest rates lower this year and declared a stopping point, Federal Reserve officials face a potentially volatile election-year problem if USA job growth slows in the coming months as many expect it will.

Fed officials and many economists have long expected monthly job growth to slow, a feeling heightened by an unemployment rate that has hit record lows and anecdotal reports from businesses that it is getting harder and taking longer to fill open positions. In a speech Tuesday to the Economic Club of New York, Trump for the first time called for negative interest rates, in which bond investors get back less money from the government than they invest. "The bar's already set very high for them to cut rates", she said.

Manufacturing and business investment continue to lag. "Over time, this outlook could restrain fiscal policymakers' willingness or ability to support economic activity during a downturn".

On the economic front, US consumer price index rose more than expected in October.

Federal Reserve Chairman Jerome Powell is likely to signal again this week that monetary policy is on hold, buttressing the belief that he may steer clear of action through 2020.

"We're paying actually high interest. We should be paying by far the lowest interest", Trump said Tuesday in NY, complaining that by shunning the negative interest rates deployed by other central banks, the Fed "puts us at a competitive disadvantage".

Ms Kathy Bostjancic, chief United States financial economist at Oxford Economics, still expects a rate cut next year.

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