The U.S. economy is slowing but remains healthy, Federal Reserve Chairman Jerome H. Powell told senators Tuesday at his semiannual testimony before Congress. But he repeatedly urged lawmakers to address “unsustainable” debt and find ways to get more Americans working again.
The economy is growing at a “solid pace, albeit somewhat slower than in 2018,” Powell said. “Over the past few months, we have seen some crosscurrents and conflicting signals.”
The Fed expects the U.S. economy to grow 2.3 percent in 2019. The Fed estimated that it grew just shy of 3 percent last year, the fastest annual pace in more than a decade but below President Trump’s goal. The Commerce Department will release the official 2018 growth figure Thursday.
Both Republicans and Democrats questioned Powell about how to get higher wages and more Americans working. Powell called it a “very troubling concern” that U.S. labor force participation remains so low compared with rates in other countries, especially for young men and for women. He suggested that Congress work on policies to improve education, address the opioid crisis and ensure that benefits for struggling Americans don’t discourage people from working.
“There are lots of people, millions of people, who are out of the labor force and in a perfect world, in a better world, would be in the labor force,” Powell said. “We want the economy to grow, and we want that prosperity to be widely spread. Labor force participation gets both of those things almost better than anything.”
More than 2.1 million people joined the labor force in the past year, but Powell said that there’s more room to go and that the retirement of many baby boomers does not explain all of the decline in labor force participation. While the United States has a record number of job openings right now, many workers lack the skills to get those jobs or do not live where the jobs are.
Powell, who has come under fire from Trump for raising interest rates four times last year, said that now is “a good time to be patient and watch and wait” before any future rate hikes. The Fed sees two major head winds: trouble abroad in the European and Chinese economies, and “ongoing government policy uncertainty,” especially on trade.
“Uncertainty is the enemy of business,” said Powell, who added that it could get even worse if Congress does not lift the debt ceiling in the coming months. “I think this would be a very big deal not to pay all of our bills when and as due. I think that’s something the U.S. government should always do."
U.S. stocks have surged since Powell said in early January that the Fed would be “patient” on any more rate hikes. Nearly three-quarters of the 281 economists surveyed by the National Association for Business Economics said the Fed’s policy is “about right” now.
Powell has been careful not to openly criticize the president, but former Fed officials have pushed back at Trump. When asked whether she thinks Trump understands macroeconomic policy, former Fed chair Janet L. Yellen said Monday, “No, I do not.”
“I doubt that [Trump] would even be able to say that the Fed’s goals are maximum employment and price stability,” Yellen said in a radio interview with “Marketplace."
When a Democratic senator asked Powell whether he agreed with Yellen that the president doesn’t understand economics, Powell demurred.
“I won’t have any comment on that for you, Senator,” said Powell, who was appointed by Trump.
Multiple outlets have reported that Trump had conversations about firing Powell at the end of last year, an unprecedented move that some don’t think is legally possible unless the Fed chairman has committed a serious crime. But Trump appears to have softened lately as markets have rebounded, and he and Powell had dinner together recently along with Treasury Secretary Steven Mnuchin and Fed Vice Chairman Richard H. Clarida.
Powell, who has just completed his first year as Fed chairman, stressed Tuesday that Congress has “entrusted us with an important degree of independence” from politics, and noted that he and his team are taking steps to be even more transparent and accountable to Congress and the public.
But when asked directly by Sen. Brian Schatz (D-Hawaii) whether anyone in the White House had “communicated with you about [interest] rates,” Powell refused to comment on private conversations with other government officials.
Senators and the Fed chairman spent some time discussing the appropriate size of the Fed’s balance sheet. Before the financial crisis, the Fed held about $800 billion worth of U.S. Treasury bonds. During the crisis, the Fed took the unusual move of buying more assets — ballooning the balance sheet to $4.5 trillion — in an attempt to get money moving again in the financial system.
Today the balance sheet stands at about $4 trillion as the Fed slowly brings it down, but there is a lot of debate about what the final figure should be and whether the Fed should continue to hold assets other than Treasurys.
Republicans have repeatedly criticized the large balance sheet and urged the Fed to scale it back, while many Democrats accuse the Fed of rushing to the aid of Wall Street and not doing enough to help Main Street after the crisis.
“I have long been concerned about the Fed’s quantitative easing programs and the size of its balance sheet,” said Sen. Mike Crapo (R-Idaho), chairman of the Senate Committee on Banking, Housing and Urban Affairs.
Sen. Sherrod Brown (D-Ohio) told Powell, “As the severity of the financial crisis became clear, the Fed rushed to the aid of the biggest banks, but it did not devote even a fraction of that firepower to helping the rest of America.”
The Fed has yet to announce its plans for the balance sheet, but top officials at the central bank have hinted that they might stop trimming in the next year, a move likely to leave the balance sheet well above $3 trillion.
Powell also made clear that he thinks the U.S. debt is growing at an unsustainable pace and that it would be a mistake to think there will be no ramifications to letting it expand forever.
“The idea that deficits don’t matter for countries that can borrow in their own currency I think is just wrong,” he said.