Powell Warns Of Overreacting To Short-Term Swing In Sentiment

In a closely watched speech before the Council on Foreign Relations in New York on Tuesday, Federal Reserve Chairman Jerome Powell reiterated that the central bank will “act as appropriate” to sustain the U.S. economic expansion.

Powell acknowledged in his prepared remarks that crosscurrents have reemerged since the Fed’s May meeting but did not appear to signal the imminent interest rate cut currently being priced in by the markets.

The Fed Chief specifically cited apparent progress on trade turning to greater uncertainty and incoming data raising renewed concerns about the strength of the global economy.

Powell said the baseline outlook for the economy remains favorable but noted that the risks to the outlook appear to have grown.

“The question my colleagues and I are grappling with is whether these uncertainties will continue to weigh on the outlook and thus call for additional policy accommodation,” Powell said.

“Many FOMC participants judge that the case for somewhat more accommodative policy has strengthened,” he added. “But we are also mindful that monetary policy should not overreact to any individual data point or short-term swing in sentiment.”

Powell reiterated that the Fed will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion.

In his opening remarks, Powell also stressed the importance of the Fed’s independence, warning of the “damage that often arises when policy bends to short-term political interests.”

President Donald Trump has repeatedly criticized Powell and the Fed, accusing the central bank of stifling the economy by keeping interest rates too high.

“Despite a Federal Reserve that doesn’t know what it is doing – raised rates far too fast (very low inflation, other parts of world slowing, lowering & easing) & did large scale tightening, $50 Billion/month, we are on course to have one of the best Months of June in US history,” Trump said in a post on Twitter on Monday.

“Think of what it could have been if the Fed had gotten it right. Thousands of points higher on the Dow, and GDP in the 4’s or even 5’s,” he added. “Now they stick, like a stubborn child, when we need rates cuts, & easing, to make up for what other countries are doing against us. Blew it!”

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