Powell says Fed policy is appropriate, sees no hurry to change

Washington

US Federal Reserve Chairman Jerome Powell said interest rates can remain on hold as the central bank waits to see how conditions abroad evolve, signaling that there's no clear time limit to the Fed's current pause.

"Inflation is muted and our policy rate we think is in an appropriate place," he said in a wide-ranging interview that aired on Sunday (Monday morning, Singapore time) on CBS News' 60 Minutes programme.

He called the current rate setting "roughly neutral" - meaning it's neither stoking nor slowing growth - and tried to define the Fed's stance of patience while reviewing fresh data.

"Patient means that we don't feel any hurry to change our interest rate policy," he said.

Mr Powell's comments come at a time when the US economy looks solid, inflation is just shy of the Fed's 2 per cent goal, and unemployment is at its lowest level since the 1960s.

Still, the Fed in January pivoted from hiking rates to taking a pause amid tighter financial conditions and as risks emerged abroad.

Asked what it would take for the Fed to move borrowing costs up or down, Mr Powell said he and his colleagues will be looking at growth, job creation, wages and inflation domestically, and will keep an eye on China, Europe and events including Britain's ongoing exit negotiations with the European Union.

"We'll be putting that all together and deciding when it will be appropriate to change our policy," he said.

"What's happened in the last 90 or so days is that we've seen increasing evidence of the global economy slowing down" and "we're going to wait and see how those conditions evolve before we make any changes to our interest-rate policy."

Mr Powell, vice-chairman Richard Clarida, governor Lael Brainard and New York Fed President John Williams have all recently signalled their contentment with letting the policy rate rest at 2.25 per cent to 2.5 per cent when they meet for two days starting March 19, and perhaps even beyond that.

Fed officials will submit new rate and economic forecasts at the March FOMC meeting, and those projections could offer clues about whether they still anticipate raising rates later this year.

The US posted solid growth of 3.1 per cent in 2018, and the expansion, now in its 10th year, is set to become the longest on record at mid-year.

"The outlook for the US economy is favourable," he said. "The principal risks to our economy now seem to be coming from slower growth in China and Europe and also risk events such as Brexit." But Mr Powell's evolving public outreach comes as the Fed combats political concerns. The US is heading into a presidential election season at a time when the central bank has transitioned from stimulating the economy to trying to stabilising it.

The Fed has also designated 2019 as a year to review its monetary policy strategy, tools and communication.

On Twitter and in speeches, US President Donald Trump has repeatedly lambasted the Fed chief he installed in February 2018 for raising interest rates last year, culminating with a fourth hike in December.

"I don't think it's appropriate for me to comment on the president," Mr Powell said when asked about Mr Trump's criticism.

But Mr Powell also said he doesn't think the president has the authority to fire him. "The law is clear that I have a four-year term. And I fully intend to serve it."

US stocks suffered their worst December since the Great Depression. In January, the Fed shifted to a more patient stance on rate moves amid below-target inflation. Asked whether the Fed will allow inflation to drift above the central bank's 2 per cent target, he pointed out that inflation has mostly been below that level. "That's something that is worth thinking about, because we want inflation expectations to be anchored at around 2 per cent," he said. "I think we'll always be moving inflation back to 2 per cent with our policy. But I think we do that in a symmetric way."

Mr Powell identified cyber-security as a major risk that the Fed works on constantly, and said the Fed is carefully watching leveraged lending to corporations. "If there were a downturn, having highly leveraged companies would be an amplifier," he said. "I don't think it's the kind of thing that we saw in the financial crisis."

Asked about income disparity in the US, he said that the Fed doesn't have direct responsibility for that issue, but that it's important nonetheless. The US has "relatively low mobility," he noted.

"The chances of making it from the bottom to the top in the United States are lower than they are in many other comparable countries," Mr Powell said. "That is not our national self-image." BLOOMBERG