Powell Says Fed Prepared to Act to Sustain Expansion; Acknowledges Limited Monetary Policy Tools

“We can, however, try to look through what may be passing events, focus on how trade developments are affecting the outlook, and adjust policy to promote our objectives,” he added.
James Hyerczyk
Fed Chair Jerome Powell

In a highly anticipated speech on Friday, Federal Reserve Chairman told global investors the Fed is prepared to act to sustain the more than ten year recovery. Powell said the Fed stands ready to do whatever it takes to support the record-long U.S. economic expansion, while stating that international developments are weighing most heavily on the Fed’s decisions.

Powell also acknowledged Fed policymakers have a limited toolbox in how it can respond to an ongoing trade war with China, noting that monetary policy is a “powerful” but not universal tool.

“Based on our assessment of the implications of these developments, we will act as appropriate to sustain the expansion,” Powell said at the central banker symposium in Jackson Hole, Wyoming, early Friday morning. He further added, “It will at times be appropriate for us to tilt policy one way or the other because of prominent risks.”

Nonetheless, the Fed chief provided no clear indication of whether the Fed plans to meet the market’s demand for a 25-basis point rate cut in September and as many as four more over the next 12 months in an effort to continue the expansion and defend the U.S. against a recession.

Powell also said uncertainty caused by Trump’s tariffs on China and other trading partners is the major risks the Fed is monitoring. He also acknowledged that since the Fed’s first rate cut in ten years on July 31, market conditions “have been eventful, beginning with the announcement of new tariffs on imports from China,” he said.

“We have seen further evidence of a global slowdown, notably in Germany and China,” Powell said. “Geopolitical events have been much in the news, including the growing possibility of a hard Brexit, rising tensions in Hong Kong, and the dissolution of the Italian government…Long term bond rates around the world have moved down sharply to near post-crisis lows.”

Powell also acknowledged the strength of the U.S. economy and “this historically strong job market” amid the dark cloud of recession predictions.

“Thus, after a decade of progress toward maximum employment and price stability, the economy is close to both goals,” he said.

“The key question raised by this era, then, is how we can best support maximum employment and price stability in a world with a low neutral interest rate,” Powell said.

“But fitting trade policy uncertainty into this framework is a new challenge,” Powell said. “There are… no recent precedents to guide any policy response to the current situation. Moreover, while monetary policy is a powerful tool that works to support consumer spending, business investment, and public confidence, it cannot provide a settled rulebook for international trade.”

“We can, however, try to look through what may be passing events, focus on how trade developments are affecting the outlook, and adjust policy to promote our objectives,” he added.

Don't miss a thing!
Discover what's moving the markets. Sign up for a daily update delivered to your inbox

Latest Articles

See All

Expand Your Knowledge

See All
The content provided on the website includes general news and publications, our personal analysis and opinions, and contents provided by third parties, which are intended for educational and research purposes only. It does not constitute, and should not be read as, any recommendation or advice to take any action whatsoever, including to make any investment or buy any product. When making any financial decision, you should perform your own due diligence checks, apply your own discretion and consult your competent advisors. The content of the website is not personally directed to you, and we does not take into account your financial situation or needs.The information contained in this website is not necessarily provided in real-time nor is it necessarily accurate. Prices provided herein may be provided by market makers and not by exchanges.Any trading or other financial decision you make shall be at your full responsibility, and you must not rely on any information provided through the website. FX Empire does not provide any warranty regarding any of the information contained in the website, and shall bear no responsibility for any trading losses you might incur as a result of using any information contained in the website.The website may include advertisements and other promotional contents, and FX Empire may receive compensation from third parties in connection with the content. FX Empire does not endorse any third party or recommends using any third party's services, and does not assume responsibility for your use of any such third party's website or services.FX Empire and its employees, officers, subsidiaries and associates, are not liable nor shall they be held liable for any loss or damage resulting from your use of the website or reliance on the information provided on this website.
This website includes information about cryptocurrencies, contracts for difference (CFDs) and other financial instruments, and about brokers, exchanges and other entities trading in such instruments. Both cryptocurrencies and CFDs are complex instruments and come with a high risk of losing money. You should carefully consider whether you understand how these instruments work and whether you can afford to take the high risk of losing your money.FX Empire encourages you to perform your own research before making any investment decision, and to avoid investing in any financial instrument which you do not fully understand how it works and what are the risks involved.