MNI POLICY: Fed's Powell: Will Act As Appropriate Amid Risks

Powell sees no recession, says politics play no role in Fed decisions

By Jean Yung

     WASHINGTON (MNI) - Federal Reserve Chair Jay Powell said he will "act as

appropriate" to sustain a U.S. economic expansion facing "significant risks"

like a global slowdown, trade policy uncertainty and weak inflation.

     Although the robust labor market and consumer sector have showed staying

power, inflation has been muted and near-term risks are to the downside, he said

Friday. He also said the Fed is not expecting or forecasting a recession.

     "We are watching geopolitical risks -- Brexit and Hong Kong -- incoming

data and financial conditions broadly, carefully," he said, "and we will act as

appropriate to sustain the expansion." The Fed has an obligation to use its

tools to support the economy, he added. 

     Powell's comments will likely cement market expectations for a

quarter-point interest rate cut at the Fed's next meeting on September 17-18,

bringing the benchmark fed funds rate target to 1.75% to 2.0%. 

     --ECONOMY IN GOOD PLACE

     The most likely outlook for U.S. growth is still a "favorable" one, Powell

told a forum at the University of Zurich hours before the Fed heads into its

communications blackout ahead of a policy meeting.

     With the unemployment rate staying near a 50-year low, the labor market

remains in "quite a strong position," he said. The August jobs report, which

came in slightly below expectations Friday, nevertheless indicated that hiring

continued at a pace "well above" one needed to absorb new workers and "was

consistent with that of a labor market that continues to tighten," Powell said.

Firms added 130,000 payrolls last month, while most economists estimate the

breakeven rate to be roughly 100,000.

     Powell noted that trade uncertainty continues to weigh on businesses

investment decisions, but declined to comment on trade policy specifics.

     The economy is "in a good place," supporting a range of views on the

Federal Open Market Committee, Powell said, referring to several officials

arguing there is no need to lower interest rates. "I expect we'll have strong

support for the decision we reach," he said. 

     --FRAMEWORK REVIEW 

     Lower real neutral rates pose the biggest challenge for central banks in

the current era, Powell said, and drives the Fed's review of its framework. 

     Some have argued the Fed should move to targeting average inflation over a

period of time, or change its 2% point target to a range. 

     Given the risk of running out of policy space quickly if a downturn hits,

the Fed is "committed to defending the 2% inflation target on a symmetric

basis," Powell said. The FOMC plans to announce decisions on the framework

review some time next year. 

     --POLITICALLY INDEPENDENT

     Political factors pay "absolutely no role" in the Fed's decision-making,

Powell said. 

     Questions over the Fed's independence intensified in recent days after

former New York Fed President Bill Dudley wrote an editorial suggesting the Fed

consider refraining from lowering rates to offset potential damage from

President Trump's trade war with China.

--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com

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