Federal Reserve Chairman Jerome Powell delivered “The Semiannual Report to Congress on “Monetary Policy and the State of the Economy” this week to the Senate Banking Committee (Tuesday) and the House Financial Services Committee (Wednesday). A prepared report of his remarks reinforces the Fed decision last month to halt interest rate hikes in light of slower consumer spending and business investment, a weakened housing market, and increased concerns about the global outlook. The report and testimony noted:
- The Fed is “in no rush to make a judgment” about how to change interest-rates.
- The U.S. economy maintained “solid” growth through the second half of 2018, likely expanding “just under” 3 percent for the year, though consumer and business spending had begun to weaken.
- “Consumer spending expanded at a strong rate for most of the second half … though spending appears to have weakened toward year-end.”
- Business investment grew as well, though growth seems to have slowed somewhat.”
- The recent 35-day partial shutdown of the U.S. government “likely held down GDP growth in the first quarter of this year.”
- Consumer and business confidence remains “favorable,” but “some measures have softened since the fall.”
- “Domestic financial conditions for businesses and households have become less supportive of economic growth.”
- The Fed will continue to reduce the size of its balance sheet, which had declined by about $260 billion since its last report to lawmakers and ended the year at close to $4 trillion.
- The Fed remains open to adjusting “any of the details” of its balance sheet plan if economic and financial conditions warrant.
- There is some underlying economic strength, with “ongoing improvements in the labor market,” and solid growth in disposable income fueled by the administration’s tax cuts, boosting household consumption.
- Unemployment has fallen close to a 50-year low, but rural areas have been slower to recover.
- Inflation last year remained close to the Fed’s 2 percent target for the current year.
- “It would be great to have clarity” from Congress on how banks and insurers can serve cannabis-related businesses amid conflicting state and federal laws.
- Criticized the modern monetary theory (MMT) – which argues since America borrows in its own currency, it can always print more dollars to cover obligations, run sustained budget deficits and rack up an ever-increasing debt burden. Powell and refuted the suggestion the Fed would ever help combat spiraling deficits by keeping interest rates low.
Late last month, the Fed stated the U.S. financial system is “substantially more resilient’ than it was before the 2008 financial crisis, although business debt has expanded and weaker lending standards remain. Fed Vice Chair Randal Quarles said last week the Fed remains committed to its dual mandate of full employment and keeping inflation at a healthy level. “The normalization of the balance sheet is not a competing goal. If ever it appears that our plans for the balance sheet are running counter to the achievement of our dual-mandate objectives, we would quickly reassess our approach to the balance sheet.”