Fed Chairman sees ‘complex, turbulent picture’ since July meeting

Reuters Fed Chairman Jerome Powell and New York Fed President John Williams walk together, ahead of the Kansas City Federal Reserve Bank’s annual conference on monetary policy, in Jackson Hole, Wyo.

Federal Reserve Chairman Jerome Powell on Friday said the central bank was “carefully watching developments” in the economy and would “act as appropriate,” but stopped short of promising any specific interest-rate easing steps. In a closely-watched speech in Jackson Hole, Powell said he and his colleagues were trying to assess “this complex, turbulent picture” that has emerged in August, with volatile financial markets, trade tensions and a weaker global economy. In his wry, understated, way, Powell said “the three weeks since our July meeting have been eventful.” But he said the Fed was working to sustain a favorable economy “in the face of significant risks.” Investors think another interest-rate cut in September is a done deal, but comments from other Fed officials at Jackson Hole show the FOMC is split. Many officials want the Fed to stay on hold. But others are backing another rate cut. The Fed cut interest rates by a quarter-point in July, a move that Powell called a “mid-cycle adjustment.” He did not repeat that phrase in this speech. The Fed chairman did argue that the July cut has eased financial conditions and helped explain why the outlook for inflation and employment looks favorable. In one more hawkish passage, Powell said inflation “seems to be moving up closer to 2%.” Some doves have pointed to weak inflation as one reason for more easing. But Powell was not closing the door on more easing. He spoke at length about how the strong job market was extending to more Americans that were “still left behind.” “Our challenge now is to do what monetary policy can do to sustain the expansion,” he said. Powell appeared to want flexibility going into the September meeting. “Based on our assessment of the implications of these developments, we will act as appropriate to sustain the expansion,” Powell said. “There are…no recent precedents to guide any policy response to the current situation,” he said. One “new challenge” to the Fed was fitting trade uncertainty into the Fed’s framework. The U.S. and China trade war heated up only one day after the Fed cut rates in July.

In a passage that seemed a swipe at President Donald Trump, Powell said interest rate policy “cannot provide a settled rulebook for international trade.”

The Dow Jones Industrial Average DJIA, -1.58%  was lower ahead of the Fed chairman’s remarks, dropping in large part amid a $75 billion round of Chinese counter-tariffs, testament to the uncertainty that Powell flagged.