Jerome Powell says central bank will ‘do whatever it takes’ to maintain strong economy

This article is more than 2 years old

This article is more than 2 years old

The Federal Reserve chairman has defended the central bank’s approach of gradually raising interest rates, after direct criticism from Donald Trump.

Jerome Powell, who was this week attacked by the president for failing to give him “some help” on the US economy, warned that steadily rising borrowing costs would be required to promote job creation and economic growth. Trump had suggested that a change of course would be better for the country.

Powell’s comments at the annual gathering of economic policymakers in Jackson Hole, Wyoming, will be viewed as a rebuke to the president. Trump on Monday had directly attacked Powell, saying he was “not thrilled” with him for raising interest rates.

Without taking on the president’s criticism directly, Powell stuck to his guns at the meeting of central bankers and academics from around the world, which is regarded as a key event for the world economy.

He said the Fed’s current strategy of steady rises balanced the risks between moving too quickly, which could limit economic expansion, and raising rates too slowly, which could lead to overheating.

“I see the current path of gradually raising interest rates … to taking seriously both of these risks,” he said.

Although Trump appointed Powell, he criticised the Fed chairman for not doing enough to support trade negotiations around the world by setting monetary policy to support the US economy.

American presidents rarely criticise the Fed because its independence is viewed as important for US economic stability. However, Trump said he disagreed with the central bank’s policy of raising rates because it could hurt the economy, and promised to maintain his criticism if Powell kept increasing the cost of borrowing.

“I’m not thrilled with his raising of interest rates, no. I’m not thrilled,” Trump said in an interview with Reuters. The president nominated Powell last year to replace Janet Yellen.

Powell said in his Jackson Hole speech: “The economy is strong. Inflation is near our 2% objective, and most people who want a job are finding one … If the strong growth in income and jobs continues, further gradual increases … will likely be appropriate.”

With Powell sticking to his guns, “the news won’t be welcomed by president Donald Trump”, said Andrew Hunter, US economist at the consultancy Capital Economics. “The clear message from Fed officials is that they remain committed to their plans.”

Most economists believe the Fed will raise interest rates again when it next meets to consider borrowing costs in September. Having begun raising rates before many other central banks around the world in 2015, the steady increases have strengthened the dollar.

In recent months, some emerging market economies with high borrowing costs in dollars have suffered as a consequence, including Turkey, where the lira has plunged in value, sparking an economic crisis.

Powell said that if the economic outlook markedly changed, the Fed would be prepared to change course. The central bank would “do whatever it takes” to maintain the strength of the US economy, he said.

Despite putting US consumers and companies on notice for higher borrowing costs, the Fed chairman said there was little sign of US inflation rising above the 2% target.

The dollar dropped on foreign exchanges after his comments, amid speculation that weaker price growth may prevent the Fed from making additional rate increases.

Some economists believe the Fed is moving too slowly given the low unemployment in the US, which could increase the bargaining power of workers to demand higher wages, stoking inflation. Others believe the economy will begin to slow, and that additional rate increases could exacerbate the slowdown.