Fed chairman says US growth threatened by trade wars and global sluggishness

Federal Reserve Chairman Jerome Powell on Wednesday depicted a robust US economy with a healthy job market and rising incomes, but warned of “noteworthy risks” that threaten future growth.

“In particular, sluggish growth abroad and trade developments have weighed on the economy and pose ongoing risks,” Powell said in prepared remarks for testimony before the Joint Economic Committee.

Last month, the Fed cut rates for the third time this year, to a range of 1.5% and 1.75%. Powell said the series of rate cuts have helped to keep the US economy and inflation nearing its target of 2% — the level the central bank considers healthy.

In his remarks, he underscored his message at a press conference following last month’s policy-setting meeting, pointing to persistent trade tensions and slowing global growth as a rationale for recent rate cuts.

He stressed to lawmakers that “policy is not on a preset course,” and the Fed would continue to monitor ongoing developments and act as needed.

“We see the current stance of monetary policy as likely to remain appropriate as long as incoming information about the economy remains broadly consistent with our outlook of moderate economic growth, a strong labor market, and inflation near our symmetric 2% objective,” said Powell.

President Donald Trump has repeatedly blamed the Fed’s policies for the slowdown in the US economy, although economists say his tumultuous trade war with China and a global manufacturing slowdown is to blame.

“We’re paying actually high interest. We should be paying by far the lowest interest,” said Trump on Tuesday during a speech in New York, where he criticized the Fed for not embracing negative interest rates pursued by other central banks. He’s argued that doing so puts the US in a “competitive disadvantage.”

During the hearing, Powell restated his position that negative interest rates would not be appropriate for the US economy.

He also highlighted the risk of central banks having less room to rescue the US economy in a downturn given historically lower interest rates.

In the past, the Fed has been able to cut its benchmark rate by around 5 percentage points, but with the federal funds rate hovering a little above 1.5% Powell noted, “We don’t have that kind of room.”

Instead, Powell urged lawmakers to be prepared to use fiscal policy measures to keep the US economy humming, and warned of the long term risks of debt growing faster than the economy, describing it as “unsustainable.”