Powell waves off recession fear while leaving rate cuts on table

Bloomberg

Federal Reserve Chairman Jerome Powell pushed back against perceptions that the US economy was tilting into a recession, while leaving the door open to further interest-rate cuts to keep the country’s record economic expansion on track.
Speaking in Zurich, Powell said consumer spending and support from monetary policy should help deliver economic growth between 2 percent and 2.5 percent this year. His remarks followed a mixed August jobs report and other readings on the economy that show fallout from President Donald Trump’s trade disputes.
“The most likely outlook for our economy remains a favorable one with moderate growth, a strong labour market and inflation moving back up close to our 2 goal,’’ Powell said during a question and answer session. “All that said, there are significant risks and we’ve been monitoring those, including slowing global growth, uncertainty around trade policy, and also persistently low inflation.”
The chairman’s remarks sought to counter pessimism building in the financial markets since Trump escalated his trade war with China last month and weak manufacturing data stoked recession fears. Analysts were divided after Powell’s remarks over whether he was underplaying risks or was simply trying to shore up confidence in the outlook.
“He is trying to manage expectations for how many cuts they are going to do,” said Drew Matus, chief market strategist at MetLife Investment Management. “Nothing that we are seeing is suggesting that we have to have a recession anytime soon.”
Investors fully anticipate US central bankers to cut interest rates by a quarter-percentage point when they next meet on September 17-18 in Washington, according to pricing in federal funds futures contracts. Powell’s comments were his last scheduled public remarks on policy as the Fed enters its pre-meeting blackout period.
“Our main expectation is not at all that there will be a recession,’’ Powell said.
“There are these risks, and we’re monitoring them very carefully and we’re conducting policy in a way that will address them.’’
The Fed chief also described the labour market as being in “a good place.” Luke Tilley, chief economist at Wilmington Trust, took a more cautious view. “The labour market is increasingly challenged,” Tilley said.
During the hour-long question and answer session, Powell avoided the term “mid-cycle adjustment,’’ a phrase from his July press conference that whipsawed markets and caused
debate among analysts at the time because it suggested limited cuts.
That cut was the culmination of a long pivot, which began in January when Powell put policy on hold after presiding over four rate hikes in 2018.
Fed officials are also struggling with the impact of trade-related uncertainty on the economy and whether White House negotiators will get any closer to a deal to end the trade war with China in meetings over the coming weeks.