Powell did not mention Trump by name on Friday, but the Fed chair made it clear that he and his colleagues on the committee that decides interest rates have not changed their minds on what the best course of action is for the U.S. economy. The Fed is independent, and while the chairman is nominated by the president and confirmed by the Senate, the president has no direct control over the central bank’s actions.
“If the strong growth in income and jobs continues, further gradual increases in the target range for the federal funds rate will likely be appropriate,” Powell said here at the central bankers' annual gathering, which is organized by the Federal Reserve Bank of Kansas City.
Powell characterized the U.S. economy as very healthy and said the Fed expects growth and hiring to continue.
“The economy is strong. Inflation is near our 2 percent objective, and most people who want a job are finding one,” Powell said. “There is good reason to suspect that this strong performance will continue.”
While Powell noted recent increases in inflation, he said there was no sign it would move much above the Fed’s 2 percent target and that “there does not seem to be an elevated risk of overheating.”
The Fed is widely expected to raise the benchmark interest rate to a range of 2 percent to 2.25 percent at its next meeting in late September, which would be the highest interest rates in a decade but not high by historical standards. The rate is currently at a range of 1.75 percent to 2 percent.
The Fed may raise rates again in December and possibly three more times in 2019, moves likely to draw Trump’s continued ire.
Powell devoted his speech Friday to defending the Fed’s actions against critics — both those who, like Trump, say the Fed is raising rates too quickly and those who say the Fed is moving too slowly.
Several protesters from the progressive group Fed Up stood outside the conference room where Powell delivered the speech. Much like Trump, they say raising rates again will harm working people’s chances of getting jobs and better pay. The protesters wore green T-shirts reading “The Fed wants more of us unemployed.”
Hiking rates rapidly could crimp, or even eventually end, the current expansion, as business and consumers stop borrowing and spending. Leaving rates too low for too long runs the risk of creating a bubble in the stock market and causing the economy to overheat, which could trigger a recession.
While Trump has been critical of the Fed, many on Wall Street and in the wider business community are supportive of his leadership of the central bank and his decisions on interest rates. Nearly 8 out of 10 business economists at major corporations said the Fed’s current actions are “about right,” according to a survey of 251 economists earlier this month by the National Association for Business Economics.
“Powell is a master of plain English and his speech reinforced that neither concerns about trade, Turkey or Trump would derail the Fed’s path to additional rate hikes for the remainder of 2018," said Bob Baur of Principal Global Investors, referencing both the president’s attacks and the recent economic instability in Turkey.
In his remarks, Powell walked through tumultuous periods of the past, such as the rampant inflation of the 1970s and the 2008 financial crisis, and he made the case that central bankers have learned from these mistakes — and evolved their thinking and models accordingly.
“I am confident that the FOMC would absolutely ‘do whatever it takes’ should inflation expectations drift materially up or down or should crisis again threaten,” he said.