Powell sees potential headwinds to U.S. growth as Fed weighs rate policy

  • Powell sees potential headwinds to U.S. growth as Fed weighs rate policy

Powell sees potential headwinds to U.S. growth as Fed weighs rate policy

The chairman's comments highlight the growing complexity the Fed faces as it sets policy and stays on course to hike interest rates for a fourth time this year in December.

The review will include outreach to a broad range of interested stakeholders.

"Slowing growth overseas. The tax cuts and spending increases that were enacted are providing some real boost right now, but that impetus is going to wear off over time", Powell said when asked to list the "headwinds" the economy may face in coming months.

"We're not just locked into policy, because that's what we did before", Atlanta Fed President Raphael Bostic said in Madrid on Thursday about alternative frameworks.

Another vocal critic of the Fed's monetary policy is President Donald Trump, who says rates hikes have hampered his administration's efforts to expand the economy.

The Fed chairman said officials are "looking really carefully" at how financial markets, the economy and business contacts are responding to rising rates. But the jobs market remains red-hot, while inflation is at its 2 per cent target.

One day after Powell spoke at the Dallas event, the Fed issued a statement saying it will, in the upcoming year, review its current approach to pursuing maximum employment and price stability. And while he said he regarded financial risks overall as "pretty moderate", with neither banks nor households heavily leveraged, he said corporate borrowing had caught the Fed's attention.

However in recent weeks policymakers have also acknowledged that this year could mark a plateau of sorts, with the Fed forced next year to balance the impact of ultra-low unemployment on inflation, while also dealing with a possible slowdown in growth.

"We have an important job that Congress has assigned. We have the tools to do it and we have the protections to do it", Powell said.

He also stressed that in his view "our economy is in such a good place right now", citing low unemployment and strong growth. He also noted expectations that the strong support the US economy has received from the $1.5 trillion tax cut Trump pushed through Congress last December and a big boost in government spending will fade. "That could be happening in the next year or so".

Powell said that the effects of the Fed's gradual but steady rate hikes could also act to slow growth.

At another point, he was asked about the old Wall Street adage that bull markets don't die of old age but rather get killed by the Federal Reserve. Trump nominated Powell as chair last November, but has become increasingly critical of the Fed, calling it "crazy" and describing it as the "biggest threat" to his presidency.