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As Trump Calls for Cuts, Powell Stresses Limits of Fed Policy
2019-08-23 14:00:44.731 GMT

By Jeanna Smialek

(New York Times) — Federal Reserve Chair Jerome H. Powell on Friday kept
future interest rate cuts squarely on the table while stressing that the
central bank’s powers to right the economy are limited by President Trump’s
trade policies, which continue to pose risks to the economic outlook.

“While monetary policy is a powerful tool that works to support consumer
spending, business investment, and public confidence, it cannot provide a
settled rule book for international trade,” Mr. Powell said, speaking from
prepared remarks in Jackson, Wyo. at the Federal Reserve Bank of Kansas City’s
annual symposium.

“Our challenge now is to do what monetary policy can do to sustain the
expansion” to achieve the Fed’s goals, he said.

Mr. Powell’s remarks indicate that the Fed, which in July cut interest rates
for the first time in a decade, remains willing to cut again. But his
reluctance to clarify the timing or size of any move highlights the central
bank’s predicament: While unemployment is low and consumer spending is strong,
Mr. Trump’s trade conflict is stoking uncertainty, weighing on manufacturing,
and roiling markets.

“Trade policy uncertainty seems to be playing a role in the global slowdown
and in weak manufacturing and capital spending in the United States,” Mr.
Powell said, adding that there are “no recent precedents to guide any policy
response to the current situation.”

His comments came as China announced on Friday that it would retaliate against
Mr. Trump’s next round of tariffs by increasing taxes on $75 billion worth of
American products, including American agricultural products, crude oil and
cars. Both countries plan to up their levies in September and December, which
could exacerbate the economic harm.

Against that backdrop, some members of the policy-setting Federal Open Market
Committee support rate cuts to shore up growth, while others want to adopt a
wait-and-see approach to monitor how the situation plays out.

“Risk management enters our decision making because of both the uncertainty
about the effects of recent developments and the uncertainty we face regarding
structural aspects of the economy,” Mr. Powell said Friday.

Mr. Trump has made no secret that he wants a big rate cut. He regularly
criticizes the Fed on Twitter and in speeches, urging it to cut rates more
aggressively to create what he sees as a more even playing field with trading
partners like China and Germany. “Our Federal Reserve does not allow us to do
what we must do,” he said in a tweet on Thursday, adding that they “move like
quicksand. Fight or go home!”

On Friday, Mr. Trump said on Twitter that the strong economy should give the
Fed confidence to cut.

Investors fully expect a rate cut in September and anticipate another before
the end of the year, based on market pricing measured by the CME Group.

Fed officials often point to two mid-1990s rate cutting cycles as rough
templates for how the central bank is approaching policy now. In both cases,
Fed officials cut rates by 75 basis points to get the economy through rough
patches.

Mr. Powell referenced those episodes in his remarks Friday, noting that “the
Fed was cutting, not raising, rates in the months prior to the end of the
first two expansions in this era, and the ensuing recessions were mild by
historical standards.”

Federal Reserve Bank of St. Louis President James Bullard, speaking earlier on
Friday on Bloomberg Television, called those instances a “great baseline” to
reference for policy now, though he did not commit to matching their size.
“That’s what they did in the ‘90s, I don’t know where we’ll end up.”

Click Here to see the story as it appeared on the New York Times website.

Copyright 2019 The New York Times Company

-0- Aug/23/2019 14:00 GMT