WASHINGTON — Federal Reserve Chairman Jerome Powell says the U.S. economy appears durable with steady growth and unemployment near a half-century low but faces risks from the broadening viral outbreak that began in China.
Giving the Fed’s semiannual monetary report to Congress, Powell said Tuesday that the Fed is content with where interest rates are, suggesting that no further rate cuts are being contemplated unless economic conditions were to change significantly. Many analysts say the Fed could keep rates unchanged this year, although some think it will feel compelled to cut rates at least once.
Powell said the Fed is monitoring developments stemming from the coronavirus, which he said “could lead to disruptions in China that spill over to the rest of the global economy.”
The daily death toll in China topped 100 for the first time, pushing the number of deaths in China from the virus above 1,000.
China remained mostly closed to business Tuesday with around 60 million people under virtual quarantine in the country, raising concerns about what the loss of production in China, the world’s second largest economy, will do to global supply chains.
China accounts for more than 80% of smartphone and notebook production globally and more than half of global TV and server production, according to recent estimates.
Powell’s comments came in prepared testimony to the House Financial Services Committee before he speaks to the committee later Tuesday. On Wednesday, Powell will testify to the Senate Banking Committee.
The Fed cut interest rates three times last year after having raised rates four times in 2018. Powell said the rate cuts were made to “cushion the economy from weaker global growth and trade developments and to promote a faster return of inflation” to the Fed’s 2% target. But since the last quarter-point rate cut in October, which reduced the Fed’s key policy rate to a range of 1.5% to 1.75%, the Fed has kept policy on hold. Powell’s remarks Tuesday indicated there had been no change in that stance.
The Fed, Powell said, “believes that the current stance of monetary policy will support continued economic growth, a strong labour market and inflation returning to the committee’s 2% symmetric objective.”
Powell said that as long as incoming economic data “remains broadly consistent with this outlook, the current stance of monetary policy will likely remain appropriate.”
The Fed chairman expressed satisfaction with many economic barometers, noting that the expansion is well into its 11th year — the longest period of uninterrupted U.S. growth on record. Last year, the economy was being buffeted by a global slowdown and rising uncertainty sparked by President Donald Trump’s trade war with China and other nations.
Powell said while the “global headwinds had intensified last summer,” the economy proved resilient, with the economy growing at a moderate pace in the second half of last year and unemployment, now at 3.6% near a half-century low.
The chairman noted that job openings remain plentiful and employers appear increasingly willing to hire workers with fewer skills and train them. He said these developments mean the benefits of a strong job market are becoming more widely shared, with employment gains broad-based across all racial and ethnic groups and levels of education.
Powell suggested that the federal government should capitalize on low borrowing rates to put the federal budget on a sounder footing. The Trump administration released a new budget Monday that projects that the deficit will top $1 trillion this year before starting to decline. The Congressional Budget Office sees the deficit remaining above $1 trillion over the next decade.
Putting the budget on a sustainable path while the economy is strong, the chairman said, would help ensure that policymakers would have the room to use the budget to help stabilize the economy during a recession.
Powell said one longer-run challenge the economy faces is low labour force participation among prime-age workers. He said that while this participation rate has been rising recently, it “remains lower than in most other advanced economies and there are troubling labour market disparities across racial and ethnic groups and across regions of the country.”
The Fed chairman said that another longer-run challenge weak productivity growth. He said finding ways to boost worker participation and productivity would benefit all Americans and should remain a national priority.
Martin Crutsinger, The Associated Press