Moderate economic growth is the "most likely outlook" for the United States, and the Federal Reserve will use its tools to ensure the economy remains healthy, Fed Chairman Jerome Powell said Sept. 6.
The Fed is monitoring "significant risks" around its favorable outlook, but the U.S. economy is in a "good place" and is likely to stay there, Powell said in his last scheduled appearance ahead of the next Federal Open Market Committee meeting.
"Our main expectation is not at all that there will be a recession," Powell said on a panel at the University of Zurich.
The Fed will "continue to act as appropriate to sustain this expansion," Powell said, declining to commit to specific policy actions but cementing market expectations that the Fed will lower interest rates again by 25 basis points at its Sept. 17-18 meeting.
The central bank cut rates on July 31 for the first time in more than a decade, citing slower global growth and ongoing trade disputes as two key factors weighing on the U.S. economy. The Fed is carefully monitoring those issues, along with geopolitical risks like Brexit and political uncertainty in Hong Kong, but the U.S. outlook is "still a favorable one despite these crosswinds," Powell said.
Still, the Fed chief noted that trade uncertainty is "causing some companies to hold back" on making investments. Dealing with such uncertainties is "not something that central banks have a lot of practice" in, Powell said, mirroring comments he made during his speech at the Jackson Hole, Wyo., conference.
"It's murky out there," Powell said.
Fed officials have been split about the Fed's next move, with some like Boston Fed President Eric Rosengren cautioning it may be too early for easier policy and others favoring aggressive action from the Fed. St. Louis Fed President James Bullard, for example, has said the Fed should have a "robust debate" about whether it should cut rates by 50 basis points at the September meeting.
Asked about those divisions, Powell said the debate is healthy and that he expects the Fed's next decision will have "strong support."
"This process of having disparate views, I think, is not something that I feel concerned about," Powell said. "In fact, it's appropriate given the situation we're in right now."
The Fed chief spoke hours after the latest U.S. jobs report showed the country added 130,000 nonfarm payroll jobs in August, below economists' expectations of 163,000 jobs gained. The slower-than-expected jobs report all but assures a 25-basis-point cut at the FOMC's September meeting, analysts said.
The jobs report is "very much consistent" with the Fed's view that the labor market is in a healthy position, Powell said. Employers are continuing to add jobs at a pace that is "well above" the one needed to absorb new entrants to the labor market, and the U.S. labor force participation rate is ticking up, Powell said.
"By so many measures, the labor market continues to strengthen," Powell said.
Powell was also asked indirectly about a recent Bloomberg op-ed from former New York Fed President William Dudley, who argued that the Fed should "state explicitly that the central bank won't bail out an administration that keeps making bad choices on trade policy." Fed officials "should consider how their decisions will affect the political outcome in 2020" and a Trump reelection victory "arguably presents a threat to the U.S. and global economy," Dudley wrote.
Dudley's op-ed got immediate pushback from economists, who said the Fed should continue making its monetary policy decisions without weighing political considerations. Sen. Thom Tillis, R-N.C., called for a Senate hearing about the Fed's independence following the op-ed.
Dudley has since clarified that attempts to influence the 2020 presidential election outcome through monetary policy "would be far outside the scope of the Fed's authority and clearly inappropriate."
Asked about whether the Fed takes politics into account, Powell said the answer would be a "hard no" and that the idea that the Fed would deviate from the task Congress assigned it is "just simply wrong."
"Political factors play absolutely no role in our process, and my colleagues and I would not tolerate any attempt to include them in our decision-making or our discussions," Powell said.
