WASHINGTON >> Federal Reserve Chairman Jerome Powell said today that the U.S. economy appears durable, with steady growth and unemployment near a half-century low, but faces risks from the broadening viral outbreak that began in China.
Powell also said that the Fed is content with where interest rates are, suggesting that no further rate cuts would be contemplated unless economic conditions were to change significantly. Since last fall, the Fed has kept its benchmark short-term rate in a low range of 1.5% to 1.75%, well below levels typical during previous economic expansions.
The chairman made his remarks today to the House Financial Services Committee on the first of two days of semiannual testimony to Congress.
The Fed is monitoring developments stemming from the coronavirus, Powell said, which he cautioned “could lead to disruptions in China that spill over to the rest of the global economy.”
In response to questions, Powell said it was too early to assess the scope of the threat the virus poses to the U.S. economy. But he observed that the economy “is in a very good place,” with strong job creation and steady if modest growth.
“We will be watching that carefully,” he said about the virus’ impact. “And the question we will be asking is will these be persistent effects that could lead to a material reassessment of the outlook” in the United States.
The daily death toll in China topped 100 for the first time, raising the number of deaths there from the virus above 1,000. China remained mostly closed to business, with around 60 million people under virtual quarantine in the country.
The lockdown has raised concerns about how much damage the loss of production in China, the world’s second-largest economy, will inflict on global supply chains. China accounts for more than 80% of smartphone and notebook production globally and more than half of global TV and server production, according to recent estimates.
In the midst of his testimony Tuesday, Powell drew an attack from a familiar corner: President Donald Trump, the man who nominated him to the Fed’s chairmanship but who has repeatedly attacked him since for not cutting rates more aggressively.
“Fed rate is too high,” Trump tweeted. “Dollar tough on exports.”
The president complained in his tweet that the Dow Jones Industrial Average had slipped during Powell’s testimony, though the Dow later recovered. It was unclear that Powell’s testimony had directly affected stock prices either way.
Asked during the hearing about the tweet, Powell gave his standard reply that he and other Fed officials are concerned only with their mandate to serve the economy and do not consider outside criticism — from the president or anyone else — in their policy-making.
“My colleagues and I are completely focused on using our tools to support … our goals, and that is all we are focused on,” he said.
Powell was also asked about negative interest rates, a policy that Trump appeared to endorse in his tweet as a way to further boost the economy.
“That’s not a tool we’re looking at,” he said, noting that some research has suggested that negative rates could hurt banks’ profitability.
Powell, who has made frequent visits with both House and Senate lawmakers to understand their concerns, faced sharp questioning from Rep. Katie Porter, D-Calif., about a recent photo that showed him attending a party at the Washington home of Jeff Bezos, head of Amazon. Porter noted that Trump’s daughter Ivanka and son-in-law Jared Kushner, as well as presidential counselor Kellyanne Conway, were at the Bezos party at a time when Trump has exerted pressure on the Fed, an independent government agency, to lower interest rates.
Powell replied that he didn’t talk with any of those people and was mainly escorting his son and his son’s new wife to the party, where he introduced them to former Trump Defense Secretary James Mattis.
Porter also pressed Powell if he knew how costly child care had become.
“It costs a lot,” the chairman said. But he said he didn’t know specifically because all his children are grown.
Several lawmakers asked the chairman about how the Fed is addressing the issue of climate change. Rep. Sean Casten, an Illinois Democrat, said that changing weather patterns and rising sea levels could threaten banks that have provided mortgages to homes in coastal areas.
Powell said banks should take that into account and later acknowledged that climate change could eventually influence Fed policy.
“As severe weather becomes more common — and that’s connected to climate change — you will see those things … entering our supervisory practices as well as our economic forecasting,” he said.
On interest rates, Powell said the Fed “believes that the current stance of monetary policy will support continued economic growth, a strong labor market” and annual inflation returning to the committee’s 2% target level.
As long as incoming economic data “remains broadly consistent with this outlook, the current stance of monetary policy will likely remain appropriate,” he said.
The chairman expressed satisfaction with many economic barometers, noting that the expansion is well into its 11th year — the longest period of uninterrupted U.S. growth on record. Last year, the economy was being buffeted by a global slowdown and rising uncertainty sparked by Trump’s trade war with China and other nations.
Powell said that while the “global headwinds had intensified last summer,” the economy proved resilient. He noted that job openings remain plentiful and that employers appear increasingly willing to hire workers with fewer skills and train them.
Those developments, he said, mean that the benefits of a robust job market are becoming more widely shared, with employment gains broad-based across racial and ethnic groups and levels of education.
Powell suggested that the government should capitalize on low borrowing rates to put the federal budget on a sounder footing. The Trump administration proposed a new budget Monday that projects that the deficit will top $1 trillion this year before starting to decline. The Congressional Budget Office sees the deficit remaining above $1 trillion over the next decade.
Putting the budget on a sustainable path while the economy is strong, the chairman said, would help ensure that policymakers would have the room to use the budget to help stabilize the economy during a recession.