Fed's Powell pushes back on negative interest rates

November 14, 2019 09:52
US Federal Reserve Chairman Jerome Powell testifies before a Joint Economic Committee hearing at Capitol Hill in Washington on Wednesday. Photo: Reuters

US Federal Reserve Chair Jerome Powell on Wednesday told Congress that negative interest rates aren’t appropriate for the US economy at a time when it is enjoying growth, a strong labor market and steady inflation.

Pushing back against a favorite talking point of President Donald Trump, the central bank chief made it clear that negative rates are not warranted in the current situation, Reuters reports. 

During a hearing before a congressional panel, Powell dodged several efforts to pull him into pre-election-year politics, alternately saying that the Fed’s job was not to set trade, immigration or federal spending policies, weigh in on Democratic candidates’ wealth tax and other proposals, or dole out credit for the US economy’s record-setting expansion, the report said.

“It has been a long slow recovery but it has come a long way,” Powell said when asked by Texas Republican Senator Ted Cruz what policies he credited most for a solid decade of continued growth. “I want everybody to get credit for that.”

But the Fed chief did wade into the economics of the negative rates of interest that countries including Switzerland and Germany currently pay on their government bonds.

Trump has repeatedly called for Powell’s Fed to cut rates and deliver the same for his government, on Tuesday in New York telling the Fed to “give me some of that money.”

“Negative interest rates would certainly not be appropriate in the current environment,” Powell said in response to a question about why European countries can in effect tax their bondholders by paying back less than is borrowed.

“Our economy is in a strong position. We have growth, we have a strong consumer sector, we have inflation ... You tend to see negative rates in the larger economies at times when growth is quite low and inflation is quite low. That’s just not the case here,” he said.

Powell’s opening statement, in fact, emphasized that even after a year in which many market analysts saw a rising risk of a US recession, the Fed’s outlook is for continued growth.

He said the impact of three rate cuts this year are still to be fully felt in supporting household and business spending, and will let the central bank likely stop where it is unless there is a “material” change in the economic outlook.

“We see the current stance of monetary policy as likely to remain appropriate with our outlook of moderate economic growth, a strong labor market, and inflation near our symmetric 2 percent objective,” Powell said.

“The baseline outlook remains favorable ... My colleagues and I see a sustained expansion of economic activity ... as most likely.”

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