Stocks surged after Powell’s remarks, with the Dow Jones industrial average leaping more than 600 points in late-morning trading. The Fed has forecast two interest rate hikes this year, but Wall Street traders and Trump don’t want any. Powell’s comments indicate the Fed might be revising its views.
“With the muted inflation readings that we’ve seen coming in, we will be patient as we watch to see how the economy evolves,” Powell said during a panel discussion at the American Economic Association annual meeting alongside former Fed chairs Janet L. Yellen and Ben Bernanke. “We’re always prepared to shift the stance of policy and to shift it significantly if necessary.”
Trump has repeatedly accused Powell of raising interest rates so fast that it’s hurting the economy, but the Fed argues that the economy is expanding faster than normal and no longer needs low rates to stimulate growth.
After the central bank raised interest rates in December, Trump asked advisers if it’s possible to fire Powell, an unprecedented move that many think isn’t legally possible since a Fed governor can only be removed “for cause.”
When asked Friday if he would step down if Trump asked, Powell said simply, “no.”
The president picked Powell for the Fed’s top job in late 2017 but has quickly soured on him after the Fed raised interest rates a full percentage point last year, an action that can slow the economy. Several of Trump’s top aides have said publicly that the president can’t fire Powell because Fed appointees can only be removed “for cause,” which courts have interpreted as criminal activity.
The Fed chair said that he hasn’t spoken with Trump, although Powell indicated he would be willing to meet with the president. “I can’t think of any Fed chairs who didn’t eventually meet with the president,” Powell said while seated alongside Yellen and Bernanke.
Larry Kudlow, Trump’s top economic adviser, said he thinks a meeting between Trump and Powell will happen and that it will help both sides to talk through their differences. But Kudlow and Powell said no meeting has been scheduled yet.
“It would be nice to have a frank and a candid exchange up close and personal,” Kudlow said Friday morning in an interview on Bloomberg TV. “President Trump would benefit. I think Jay Powell would benefit.”
Powell vowed repeatedly Friday that the central bank would be “flexible” as it decides whether to continue raising interest rates in 2019. Yellen supported the strategy, saying the Fed is in a good position to maintain that flexibility.
All three said the U.S. economy would grow at a slower rate this year than last but that they saw little sign of a recession.
“It’s likely the economy will grow more slowly in 2019 than 2018,” Bernanke said. “This is not something that is news. We’ve anticipated this for a long time” because it was clear the “stimulus would be dying down over time.”
Yellen added that growth is “still likely to end up being above the growth rate of potential, which is consistent with a strong labor market and maybe even some further tightening."
The Fed recently cut its forecast for growth in 2019 to 2.3 percent (down from 2.5 percent) as concerns grow about the stock market correction and the slowdown in China and Europe dragging down the U.S. economy. But Fed leaders still insist that is above trend and very healthy growth.
“Unemployment has been under 4 percent for nine months now. We have inflation under control. I think that’s a pretty good outcome, and we sure think it can continue,” Powell said, adding that he feels “fine” about capital markets.
Powell’s optimism was bolstered Friday when the Labor Department announced the economy added 312,000 jobs in December, blowing out expectations and capping the best year of job growth since 2015.
If the U.S. economy keeps growing through July, this will be the longest expansion in U.S. history. Bernanke predicted the economy would achieve this milestone and that people shouldn’t fear an immediate downturn just because the nation has never experienced economic growth for this long.
“Expansions don’t die of old age. I like to say they get murdered,” Bernanke said.