Federal Reserve Chair Jerome Powell is likely to sound fairly upbeat about the outlook for US economic growth when he testifies this week in the first of his twice-a-year updates to Congress, even as he nods to the potential threat from the coronavirus in China.
That assessment would echo the formal report the Fed submitted to the US Congress on Friday, which repeated the central bank’s view that its current target range for short-term borrowing costs, between 1.5 percent and 1.75 percent, is “appropriate” to keep the expansion on track.
Not just the message will be familiar; Powell will also be addressing a familiar crowd. His calendars show he has talked privately with most of the lawmakers set to publicly grill him this week.
Indeed Powell has made lawmaker outreach a signature feature of his tenure. In just two years on the job, he has spent about 96 hours in private meetings, phone calls, group meals or study sessions with senators and members of the House of Representatives.
That compares with 77 hours for his predecessor, Janet Yellen, over her four years as Fed chair.
With risks like trade policy uncertainty receding, Powell has signaled he sees no reason to adjust US interest rates unless there is a “material” change to the current outlook.
That’s a view he is likely to reiterate when he presents the Fed’s monetary policy report on Tuesday to the House Financial Services Committee and on Wednesday to the Senate Banking Committee.
“His message will probably be that, if rate cuts are coming, they would come solely in response to global disruptions associated with the virus,” said Robert Perli, an economist at Cornerstone Macro. “He will likely say clearly that the US economy is inherently healthy.”
Investors will be watching carefully for any new details on the Fed’s plans for its balance sheet and for the short-term funding markets into which it has been pumping liquidity to prevent a repeat of an unexpected spike in the policy rate last fall.
A letter some Democratic US senators sent last week to Powell on the steps the Fed is taking suggests Powell could be in for some pointed questions on the subject.
Meanwhile, the US economy is in good shape and the Federal Reserve should hold rates steady for the time being, a top Fed official said.
Philadelphia Federal Reserve Bank President Patrick Harker said he expects economic growth to reach 2 percent this year and that the unemployment rate could stay below 4 percent for a couple of years, according to remarks prepared for a speech in Newark, Delaware.
“My own view right now is that we should hold steady for a while and watch how developments and the data unfold before taking any more action,” said Harker, noting he thinks the economy is on track to reach the central bank’s 2 percent inflation target.
Fed officials left rates unchanged at last month’s policy meeting, with the target range for its benchmark rate at 1.50 percent to 1.75 percent. Policymakers said rates are well positioned following three rate reductions last year and signaled rates are likely to stay on hold unless there is a substantial change to the economic outlook.
Harker, who became a voting member for policy decisions last year, did not support the last two rate reductions. He said before last month’s meeting that there could be downside to lower rates, which could encourage investors to take more risk.
On Monday, Harker said lower mortgage rates could lead more homeowners to refinance their loans, a shift that could boost consumer spending.
Still, there are several risks that could drag down the economy, Harker said. Businesses are hesitating to invest on hiring and equipment because of uncertainty over trade, the global economy and geopolitical tensions, he said.
Concerns over the coronavirus outbreak could also affect economic growth, he said. “It’s too early to say what impact the spread of the coronavirus will have on the global economy, but the negative effects on the Chinese economy and international travel are something to watch,” Harker said.
During a panel after he delivered his remarks, Harker said he thought reducing interest rates by a quarter of a percentage point is unlikely to offer much relief to companies whose supply chains were interrupted because of virus-related shutdowns. — Reuters
