MNI: Powell Says Fed Policy Is Not On A Preset Course

The Federal Reserve's monetary policy is not on a preset course and officials will continue to determine the appropriate stance based on the incoming data, the evolving outlook, and the balance of risks, Chair Jerome Powell said Tuesday.

"Uncertainty around the path of inflation remains high. We will carefully assess and manage the risk of higher and more persistent inflation. We will make sure that this one-time increase in prices does not become an ongoing inflation problem," Powell said in prepared remarks for a speech in Rhode Island. 

The threat of higher unemployment has shifted the central bank's assessment of the balance of risks, the chair said. "We therefore judged it appropriate at our last meeting to take another step toward a more neutral policy stance, lowering the target range for the federal funds rate by 25 basis points to 4 to 4.25%."

"This policy stance, which I see as still modestly restrictive, leaves us well positioned to respond to potential economic developments," Powell told the Greater Providence Chamber of Commerce. 

The  U.S. economy is showing resilience in the midst of substantial changes in trade and immigration policies, as well as in fiscal, regulatory and geopolitical arenas, but "recent data show that the pace of economic growth has moderated," Powell said.

NO RISK-FREE PATH

Powell repeated that the two-sided risks to the Fed's dual mandate goals means that there is no risk-free path to monetary policy (See: MNI POLICY: Fed Takes Measured Approach To Post-September Cuts)

"If we ease too aggressively, we could leave the inflation job unfinished and need to reverse course later to fully restore 2 percent inflation. If we maintain restrictive policy too long, the labor market could soften unnecessarily," he said. 

"When our goals are in tension like this, our framework calls for us to balance both sides of our dual mandate."

Powell said the unemployment rate is low but has edged higher while job gains have slowed. At the same time, inflation has risen and remains somewhat elevated. 

"In recent months, it has become clear that the balance of risks has shifted, prompting us to move our policy stance closer to neutral at our meeting last week," he said.

Tariff increases will likely take some time to work their way through supply chains, thus spreading this one-time increase in the price level over several quarters, he said.