Federal Reserve chairman Jerome Powell on Friday said the U.S. central bank is prepared to take action in the event of a global economic downturn. Powell, however, was tightlipped on whether the Fed would initiate another quarter-point interest rate cut as many investors had hoped.
Global trade disputes, Powell stressed, like the one President Trump is waging against China, pose a "new challenge" for the Fed.
"While monetary policy is a powerful tool that works to support consumer spending, business investment, and public confidence, it cannot provide a settled rulebook for international trade," he said during a speech at the Fed's economic symposium in Jackson Hole, Wyoming.
Wall Street, nonetheless, seemed encouraged by Powell's remarks.The Dow Jones average responded quickly by erasing triple digit losses that began Friday morning on news of retaliatory trade measures by China. Several other indexes also moved into positive territory. The boost was short-lived, however, as markets plummeted after Trump tweeted that he would be responding to new Chinese tariffs later in the day.
In his remarks, Powell said that since the Fed cut rates last month, global occurrences have been "eventful" and point to further evidence of a forthcoming economic slowdown. The recent events include escalated trade tensions between the U.S. and China, the increased possibility of a so-called "hard Brexit," the dissolution of the government in Italy, and unrest in Hong Kong.
Powell said that such global uncertainties, along with the trade disputes and muted inflation, were significant risks weighing on the U.S.' historically strong economy.
"Based on our assessment of the implications of these developments, we will act as appropriate to sustain the expansion," he said, without offering an indication about where the Fed stands on further interest rate cuts.
Last month's rate cut — announced on July 31 — marked the first time the central bank lowered interest rates since 2008, in the middle of the financial crisis. Markets fell after that cut, however, because the Fed said the lowering was a "recalibration" and not the start of the rate-slashing cycle.
President Trump has repeatedly lambasted the Fed, which has historically been above partisan politics, for not lowering interest rates to spur further economic growth — despite the country's unprecedented low unemployment levels and strong price stability.
Following Powell's speech on Friday, Trump railed against Fed, tweeting "It is incredible that they can 'speak' without knowing or asking what I am doing." He also went after Powell personally, asking "who is our bigger enemy, Jay Powell or Chairman Xi?" — referring to Chinese President Xi Jinping.
Powell — who was appointed by Trump in 2017 to replace Janet Yellen — has consistently said the Fed is not influenced by political pressures.
In his speech, Powell said that the Fed was examining all of its "monetary policy tools" to foster the U.S. economy and was even debating whether it "should expand our toolkit." There are, Powell added, "no recent precedents to guide any policy response to the current situation."
