By Nick Timiraos
Fed Chairman Jerome Powell offered a mostly bullish assessment of the U.S. economy over two days of congressional hearings that ended Wednesday, but there weren’t many hints of hawkishness.
Consider: Pressed over whether inflation was more likely to be stronger- or lower-than-expected, he said he was “maybe slightly more worried about lower inflation, still.”
Perhaps that’s not a surprise after the Fed has consistently projected inflation returning to its 2% target, only to see global events or idiosyncratic weaknesses intrude on those forecasts.
The exchange is the latest reminder that Mr. Powell wants to see inflation to stay at 2% or even rise slightly above it for a while before declaring success on hitting the target.
Later, he showed lingering doubts over whether the economy, with 4% unemployment in June, had reached a level of full employment, meaning joblessness can’t go sustainably lower.
“We’re close to full employment — maybe not quite there,” he said.
The exchanges reveal that while some Fed officials worry they could fall behind the curve, particularly with fiscal policy likely to boost growth and further reduce the unemployment rate, Mr. Powell isn’t lighting his hair on fire.
At the same time, he declined an opportunity to echo the concerns of more dovish Fed bank presidents. He didn’t appear terribly worried by the recent flattening of the yield curve, even though several of officials have raised more alarm over the signal embedded in the shrinking term spread.
He also revealed greater concern than at his June press conference over the downside risks of trade tariffs and related international disruptions.
Mr. Powell offered nothing to push back against market expectations of two more rate increases this year, with the next one coming in September. But he showed how the debate over what to do after that, as the Fed gets much closer to a neutral rate setting, is far from settled.
Write to Nick Timiraos at firstname.lastname@example.org
(END) Dow Jones Newswires
July 23, 2018 06:04 ET (10:04 GMT)
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