US Federal Reserve Chairman Jerome Powell was bullish in his assessment of current US finances yesterday, using his testimony to the Senate Banking Committee to suggest that the current state of affairs is playing out well for the country’s economy.
While the dollar finds itself buoyant on the back of Powell’s comments, it seems that despite rhetoric outside of the country, the US economy is finding its feet.
When asked by the committee about his thoughts on the seemingly ongoing trade war between the US and some of its economic rivals, Powell was clear in stating that he considers the protectionist moves to be of low-enough risk.
He went on to say that he thought the opposite could happen and that several advantages could emerge due to lower tariffs worldwide, which may occur as a result of new trade policies playing out over the long term.
However, this position of bargaining led to some heavy questioning for Powell from districts that have been feeling the pinch from these strategies.
North Dakota representative Heidi Heitkamp said that the energy sector in her state is already struggling from the effects of steel import tariffs and lamented the imposition of “short-term pain for long-term gain”. Heitkamp also reported that farmers in North Dakota are concerned about a permanent loss of market share due to retaliatory measures applying to their own goods.
Declaring her unease at collectively putting “our head in the sand”, Heitkamp went on to predict this point to be the start of an economic downturn, saying that this is the point that people will look back on as the precursor to a recessive market.
While Powell avoided criticizing any current economic strategies abroad or the US President himself, he did note that the longer these tariffs stay in place, the more likely it is that the country will “feel it at the national level”. He regarded the tariffs as “absolutely” the wrong approach.
Regional bank presidents at the Federal Reserve have been quick to mention their own worries over continuing trade disagreements around the world, suggesting that there are several local trade concerns in their areas due to market uncertainty caused by the measures. These issues are offsetting any positive outcomes that tax cuts may have on businesses.
Despite all this, Powell remained clear that the Fed is getting closer to reaching its policy targets. The US economy and many others around the world are still yet to fully recover and outgrow levels last seen before the major economic crash in 2008.
Hailing the US economy as a clear improvement and work in progress, Powell maintained that it is on track to hit targets of keeping inflation near 2% and continuing demonstrable job growth over the next few years, something that is achievable with “appropriate monetary policy”.
The way to do this, said Powell in a prepared statement, is to “keep gradually raising the federal funds rate” at a level that maintains economic growth without being fast enough to weaken these efforts.
Powell’s upbeat review of the economy served to boost the dollar’s performance against international currencies and commodities. Stocks also rose, and bond prices fell.