Jay Powell, Federal Reserve chairman, said that fitting trade uncertainty into the central bank's policy framework was "a new challenge", emphasising the Fed has little ability to influence international trade negotiations.
In a closely watched speech in Jackson Hole just hours after China announced new tariffs on $75 billion (€68 billion) of US products, Mr Powell gave no new indication about the outlook for interest rates, repeating a line he has used since June: "We will act as appropriate to sustain the expansion."
Setting trade policy, he said, was "the business of Congress and the administration, not that of the Fed. Our assignment is to use monetary policy to foster our statutory goals."
Though he conceded that in principle anything affecting employment and inflation could impact monetary policy, he said that there were “no recent precedents” for the current situation. “Moreover,” he added, “while monetary policy is a powerful tool that works to support consumer spending, business investment and public confidence, it cannot provide a settled rule book for international trade.”
Instead, he said, the Fed can “try to look through what may be passing events,” and examine how trade policy is actually affecting the outlook. He described this as still mostly positive, with “solid” job growth and rising wages supporting consumption and “moderate” growth.
Ambiguous data
Over the summer, the Fed has been looking at ambiguous US economic data. Industrial production, an index of manufacturing and mining activity, is still growing, though just barely. US retail sales still show an untroubled consumer, though the University of Michigan’s consumer sentiment index dipped slightly in August, particularly for expectations of future conditions.
Unemployment in the US remains at 3.7 per cent, though it no longer falling as consistently as it had. As he has in the past, Mr Powell cited the social gains of a tight labour market: wages increasing at the lower end of the pay scale, a historically low unemployment rate for African-Americans, rising labour force participation for prime-age workers, better training and more flexible conditions.
“From this perspective,” Mr Powell said, “our economy is now in a favourable place.” – Copyright The Financial Times Limited 2019
