Powell says Fed is insulated from US political pressure

Reuters

Posted at Jun 26 2019 01:29 AM

NEW YORK - Federal Reserve Chairman Jerome Powell on Tuesday said the US central bank is "insulated from short-term political pressures," as policymakers faced new calls by President Donald Trump to cut interest rates.

"The Fed is insulated from short-term political pressures -what is often referred to as our 'independence,'" Powell said in remarks prepared for delivery at the Council on Foreign Relations. "Congress chose to insulate the Fed this way because it had seen the damage that often arises when policy bends to short-term political interests. Central banks in major democracies around the world have similar independence."

Powell's remarks come as the central bank, which paused rate hikes this year and has suggested it could cut them in the face of concerns including the Trump administration's conflicts with trading partners, faces increasing anger from Trump. The president said on Sunday on NBC's 'Meet the Press' program that he has the power to demote Powell but has not threatened to do so. 

Trump on Monday said on Twitter that the Fed "doesn’t know what it is doing," adding that it "raised rates far to fast" given low inflation and slowing global growth. 

"Think of what it could have been if the Fed had gotten it right," Trump said. "Thousands of points higher on the Dow, and GDP in the 4’s or even 5’s. Now they stick, like a stubborn child, when we need rates cuts, & easing, to make up for what other countries are doing against us. Blew it!" Few economists agree with Trump's high estimates of where US growth can be.

At its latest meeting last Wednesday the central bank's policy-setting Federal Open Market Committee signaled rate cuts beginning as early as July and said it is ready to battle growing global and domestic economic risks as it took stock of rising trade tensions and growing concerns about weak inflation.

Even as the US central bank left its benchmark interest rate unchanged for now, the shift in sentiment since its last policy meeting was marked. 

Powell on Tuesday reiterated that the central bank still sees US growth prospects as strong, with unemployment low and inflation near the Fed's 2% annual target, but that he and his colleagues are wrestling with whether uncertainty over trade and other issues support a case for lowering rates.

"The question my colleagues and I are grappling with is whether these uncertainties will continue to weigh on the outlook and thus call for additional policy accommodation," Powell said.

"Many FOMC participants judge that the case for somewhat more accommodative policy has strengthened. But we are also mindful that monetary policy should not overreact to any individual data point or short-term swing in sentiment. Doing so would risk adding even more uncertainty to the outlook. We will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion."