Federal Reserve (Fed) Chairman Jerome Powell said today that he does not expect any further changes in interest rates after three consecutive cuts, noting that the “favorable” economic outlook points to the maintenance of a “sustained expansion”.
Despite “risks worthy of attention,” such as the moderation of global growth and the consequences of the trade war with China, Powell considered “the sustained expansion of economic activity” as “most likely”.
“We see the current monetary policy position as likely to remain appropriate as long as the information coming in about the economy is consistent with our prospects for moderate economic growth, a strong labour market and inflation close to our symmetrical target of 2%,” he said in his prepared speech to the joint economic committee of Congress.
The president of the central bank also assured legislators that “this favorable base scenario reflects the adjustments made to support the economy.
After three consecutive cuts, benchmark interest rates are currently between 1.5% and 1.75%.
Powell’s words contrast with President Donald Trump’s insistence on further cuts in the price of money and his repeated criticism of the Fed, which he has accused of being an obstacle to economic expansion.
“As I predicted, Jerome Powell and the Federal Reserve have allowed the dollar to become too strong, especially in relation to all other currencies, so our manufacturers have been negatively affected,” Trump said on his Twitter account in October.
“Rates are too high. They’re their own enemies, they have no idea. Pathetic!”
The three consecutive falls in the price of money by the Fed came after the economy’s slowing trajectory seems to be confirmed with an annual rate in the third quarter of the year of 1.9%, after 3.1% at the beginning of the year and 2% in the second quarter.
Also the International Monetary Fund (IMF) has lowered the forecasts for the national economy to 2.4% this year and placed the 2020 forecasts at 2.1%.
The indicators continue to send, however, disparate signals about the health of the economy, especially because of the solidity exhibited by the labour market, with an unemployment rate below 4%.
Powell also issued a warning that “the context of low interest rates may limit the ability of monetary policy to support the economy”, especially in relation to high debt and growing budget deficits.
The government’s budget deficit soared by 26% in fiscal year 2019 to nearly $1 trillion ($984 billion) the highest figure in seven years, the Treasury Department reported last month.
The fiscal imbalance as a percentage of gross domestic product (GDP) rose from 3.8% in 2018 to 4.6% this year.
This rise comes despite President Trump’s promises to reduce the imbalance in public accounts and after a tax reform that included significant cuts for businesses and, to a lesser extent, for workers.
“The federal budget is on an unsustainable path, with high and rising debt. Over time, these projections could constrain the will or fiscal capacity of the authorities during a slowdown,” Powell warned.
The Fed’s next meeting is scheduled for Dec. 10-11.