The American economy should continue its expansion, with strong jobs markets but with price pressures in check and inflation approaching the central bank’s target, Federal Reserve Chairman Jerome Powell said Tuesday.
However, US job creation has slowed while a weakening global economy, trade wars and Brexit uncertainty are risks to the outlook, he said.
Policymakers “continue to see a sustained expansion,” Powell said in a speech to the National Association for Business Economics in Denver. “At present, the jobs and inflation pictures are favorable.”
Powell’s remarks suggest the case for further cuts to the Fed’s benchmark lending rates could be weakening, with employment data now showing the US jobless rate fell to its lowest level in 50 years in September.
In addition, he said the Fed will soon announce more permanent measures to boost banks’ cash reserves after a recent shortage sent short-term interest rates skyrocketing.
This will include plans to buy more short-term Treasurys to boost reserve levels, he said.
Economists have been alarmed in recent weeks, saying recession odds are rising as forward-looking indicators like consumer and business confidence and surveys of industrial activity have slowed or even contracted.
The Fed has cut interest rates twice this year to help cushion the American economy against shocks from the US-China trade war, including a sharp drop in investment, and from plummeting demand from foreign markets.
Investors overwhelmingly expect the central bank to lower rates again later this month.
Boosting bank reserves
While the Fed relies on economic statistics to determine its policy steps, Powell noted that revised data showed recent US job creation was significantly weaker than previously reported.
And experience suggests some of this will carry forward, he said.
“Thus, the currently reported job gains of 157,000 per month on average over the past three months may well be revised somewhat lower,” he said.
Even so, policymakers still believe gains in the job market should be enough to provide work for all the new labor market entrants who join the job hunt, he said.
As for the inner workings of the economy’s financial plumbing, he said the Fed will also begin buying bonds again to help boost banks cash reserves.
Since mid-September, the New York Federal Reserve Bank, the Fed’s main point of contact with financial markets, has been pumping liquidity into money markets to keep short-term rates from spiking above the central bank’s target range.
Policymakers had previously pledged to boost bond holdings “at some point… to maintain an appropriate level of reserves,” and “That time is now upon us,” Powell said.