Fed chair Jerome Powell sounded upbeat in his speech on ” The Outlook for the U.S. Economy” last Friday. He acknowledged that “the labor market has been strong, and my colleagues and I on the Federal Open Market Committee (FOMC) expect it to remain strong.” And, inflation is expected to ” move up in coming months and to stabilize around 2 percent over the medium term.” Powell also pointed to others signs of strengthen including “steady income gains, rising household wealth, and elevated consumer confidence”. Powell also noted that the connection between unemployment rate and inflation has “clearly weakened” over the past couple of decades. But he emphasized that the connection “still persists”. And “it continues to be meaningful for monetary policy.”
Regarding monetary policy, Powell said that “as long as the economy continues broadly on its current path, further gradual increases in the federal funds rate will best promote these goals” of price stability and full employment. He repeated what others have said that ” raising rates too slowly would make it necessary for monetary policy to tighten abruptly down the road, which could jeopardize the economic expansion.” On the other hand, “raising rates too quickly would increase the risk that inflation would remain persistently below our 2 percent objective.” And Fed’s gradual path is aiming at balancing these two risks.
Regarding recent tensions between Trump and China on trade, Powell noted that “the discussion about trade is at a relatively early stage”. And, “people really don’t see yet any impact for the near-term outlook.” However, he did noted that business leaders have already expressed their concerns to Fed officials that “changes in trade policy have become a risk to the medium-term outlook.”
