The Federal Reserve “will act as appropriate to sustain the expansion,” Chairman Jerome Powell

JACKSON HOLE, Wyo.–In comments at the conclusion of the Fed’s annual summer retreat here, Federal Reserve Chairman Jerome Powell said objective is to maintain the economic expansion, but also made an indirect reference to President Trump’s tariffs by saying “trade policy uncertainty” was the new challenge.

Less than an hour after delivering his comments, Trump tweeted the Fed has done “NOTHING” and then added, “My only question is, who is our biggest enemy, Jay Powell or Chairman Xi?”

During his prepared statement, on several occasions Powell said the Fed “will act as appropriate to sustain the expansion,” adding that when it comes to the Fed’s dual mandate on full employment and price stability, the “economy is close to both goals.”

 

“Our challenge now is to do what monetary policy can do to sustain the expansion so that the benefits of the strong jobs market extend to more of those still left behind, and so that inflation is centered firmly around 2%,” Powell said.

 

With many analysts attempting to read the Fed tea leaves for plans for further rate cuts, Powell said among the challenges to Fed officials is there are “no recent precedents to guide any policy response to the current situation.” The Fed cut rates at its July meeting and many are anticipating another quarter-point cut when the Fed meets in September.

“While monetary policy is a powerful tool that works to support consumer spending, business investment, and public confidence, it cannot provide a settled rulebook for international trade,” said Powell. “We can, however, try to look through what may be passing events, focus on how trade developments are affecting the outlook, and adjust policy to promote our objectives.”

The Toolkit
Powell said the Fed is examining “monetary policy tools we have used both in calm times and in crisis, and we are asking whether we should expand our toolkit.”

Looking forward and beyond just the U.S. economy, Powell added,  “The global growth outlook has been deteriorating since the middle of last year. Trade policy uncertainty seems to be playing a role in the global slowdown and in weak manufacturing and capital spending in the United States.”

At its July 30-31 meeting, the policymaking Federal Open Market Committee approved a 25 basis point rate cut, the first reduction in 11 years. Officials cited concerns over weaker global growth, the U.S.-China trade tensions and low inflation in making the reduction.

The New ‘Challenge’
 “Because the most important effects of monetary policy are felt with uncertain lags of a year or more, the Committee must attempt to look through what may be passing developments and focus on things that seem likely to affect the outlook over time or that pose a material risk of doing so,” he added. “But fitting trade policy uncertainty into this framework is a new challenge. Setting trade policy is the business of Congress and the Administration, not that of the Fed.”

Powell did not mention the yield curve inversion that has been rattling the markets, in which the 2-year Treasury note has surpassed the 10-year, a reliable recession indicator for the past 50 years. Minutes from the last meeting also offered only passing reference to the curve spread, and Powell made no mention of recession in his speech.

Trump thundered Powell on Twitter, saying “the Fed did NOTHING.”