Fed’s Powell says economy in good place, warns on coronavirus

Thursday, 13 February 2020 00:00 - - {{hitsCtrl.values.hits}}

Federal Reserve Board Chairman Jerome Powell testifies before the House Financial Services Committee during a hearing featuring the semi-annual Monetary Policy Report, on Capitol Hill in Washington, US, 11 February – Reuters

WASHINGTON (Reuters): Federal Reserve Chair Jerome Powell told Congress on Tuesday that the US economy is in a good place, even as he cited the potential threat from the coronavirus in China and concerns about the economy’s long-term health.

With risks like trade policy uncertainty receding and global growth stabilizing, “we find the US economy in a very good place, performing well,” Powell told the US House of Representatives Financial Services Committee. The US economic expansion, now in its 11th year, is the longest on record.

“There is no reason why the expansion can’t continue,” he said, repeating the central bank’s view that its current target range for short-term borrowing costs, between 1.50% and 1.75%, is “appropriate” to keep the expansion on track.

But, he said, the outbreak of the new coronavirus will impact China and its close neighbours and trading partners, and there will “very likely be some effects on the United States.”

“The question we will be asking is will these be persistent effects that could lead to a material reassessment of the outlook,” he said. The answer, he said, is still too early to know.

Politics

Lawmakers peppered Powell with questions ranging from the Fed’s injections of liquidity into short-term funding markets to climate change to the community reinvestment act (CRA) to the space economy.

Powell’s answers stuck largely to script. He defended the Fed’s plan to ease strains in the banking system with Treasury bill purchases and repo operations, and said the central bank will likely reach an appropriate level of reserves around mid-year.

He repeated that combating climate change is the purview of other agencies but that it is the Fed’s job to make sure extreme weather events don’t destabilise the financial system.

He offered little new on proposed changes to the CRA, which the Fed has so far not endorsed, and said he didn’t know much about the economic impact of activities in space.

And he declined overall to bite on partisan politics.

Asked by Kentucky Republican Andy Barr if US President Donald Trump’s policies including tax cuts and trade deals were helping the economy, Powell responded, “at a high level – of course they are.”

But he also sounded a muted warning about the growing federal deficit, which is predicted to reach more than $1 trillion in 2020 driven in part by the tax cuts.

At one point, California Democrat Katie Porter noted Trump’s repeated criticism of the Fed and displayed a photo of Powell at a party in January hosted by Jeff Bezos and attended by Trump’s daughter Ivanka, son-in-law Jared Kushner and JP Morgan Chase chief Jamie Dimon. She suggested that appearing there might show the Fed is under their sway.

“I would certainly hope not,” Powell said, adding that he did not speak with any of the attendees Porter named.

As Powell spoke, the Standard & Poor’s 500 index pared earlier gains and the Dow Jones Industrial Average briefly dropped into negative territory.