Sunday July 12th, 2020 9:02AM

Powell says Fed stands ready to respond to trade conflicts

By The Associated Press
Related Articles
  Contact Editor

WASHINGTON (AP) — Chairman Jerome Powell said Tuesday that the Federal Reserve is prepared to respond to the Trump administration's trade conflicts to protect the U.S. economic expansion if it decides that would be necessary.

Powell's comments came at a conference in Chicago on how the central bank can make its interest rate policy more effective at a time when inflation has remained chronically below the Fed's target level.

Powell called persistently low inflation the "pre-eminent monetary policy challenge of our time," because it limits the Fed's ability to support the economy by cutting rates.

The chairman didn't specify in his remarks what the Fed might do to help bolster the U.S. economy, which is being buffeted by tariffs the Trump administration has imposed on China and has threatened to impose on Mexico.

In a news conference in London on Tuesday, President Donald Trump said that the tariffs on Mexico will start taking effect next week at a level of 5%, rising to a peak of 25% unless Mexico does more to assist in halting the flow of immigrants into the United States.

Economists have said the tariffs on goods coming in from Mexico, coupled with the expansion of tariffs on Chinese imports, will have significant economic impacts on the United States.

"We do not know how or when these issues will be resolved," Powell said in his remarks. "We are closely monitoring the implications of these developments for the U.S. economic outlook and, as always, we will act as appropriate to sustain the expansion."

Powell said that the Fed's first-ever public review of its operations would focus on ways to improve the central bank's interest-rate strategies, the tools it uses to achieve its objectives and the way it communicates its actions to the public.

The current expansion next month will become the longest period of uninterrupted growth in U.S. history, surpassing the 10-year expansion of the 1990s.

The Fed manages interest rates to achieve two goals, maximum employment and low inflation. While unemployment has fallen to a 50-year low of 3.6 percent, inflation has failed to rise to the Fed's target of 2%. The Fed sees that target as the optimal level for annual price increases and worries if the price gains go too far above 2 percent or fall below that level.

However, the central bank's efforts to achieve the 2 percent target have so far failed despite the fact that it kept its key policy rate at a record low near zero for seven years. It began gradually increasing its policy rate in December 2015.

After raising rates nine times, including four hikes last year, it declared in January that it would be "patient" in raising rates further. Most analysts believe that it will keep rates unchanged for the rest of the year. Some investors are even beginning to bet that the next move will be a rate cut later this year.

The policy rate at the moment is in a range of 2.25 percent to 2.5 percent, meaning that the Fed has less room to cut rates to stimulate growth.

What the central bank can do to manage the economy when inflation is so low and interest rates have little maneuvering room will be a key discussion topic at the two-day conference, which features the presentation of a number of academic papers.

"Our obligation to the public we serve is to take those measures now that will put us in the best position to deal with our next encounter with the ELB," Powell said, referring to the effective lower bound for interest rates.

"With the economy growing, unemployment low and inflation low and stable, this is the right time to engage the public broadly on these topics," Powell said.

In addition to the Chicago conference, the Fed is holding a number of listening sessions around the country to get input from the public.

Powell said that after this outreach, Fed officials will begin using their regular meetings to discuss possible changes. Private economists believe that the year-long review is likely result in only modest changes to current Fed policies.

  • Associated Categories: Associated Press (AP), AP National News, AP Online National News, Top General short headlines, AP Online Headlines - Washington, AP Business, AP Business - Economy, AP Business - Industries, AP Business - Financial Services
© Copyright 2020
All rights reserved. This material may not be published, broadcast, rewritten, or redistributed without permission.
Powell says Fed stands ready to respond to trade conflicts
Powell says Fed is prepared to respond to Trump's trade conflicts if needed
10:40AM ( 4 minutes ago )
Renault to respond to Fiat Chrysler marriage proposal
French carmaker Renault looks likely to give a tentative "yes" to Fiat Chrysler's merger offer
10:28AM ( 15 minutes ago )
Trump says Mexico tariffs 'likely,' Mexico predicts a deal
President Donald Trump says he expects to begin hitting Mexico with tariffs next week in a dispute over illegal immigration
10:28AM ( 15 minutes ago )
Associated Press (AP)
The Latest: Trump praises May's Brexit negotiating skills
President Donald Trump has dialed back on past criticism of Prime Minister Theresa May's Brexit negotiating skills, saying she got a good divorce agreement with the European Union
10:04AM ( 39 minutes ago )
Missouri subpoenas abortion clinic doctors amid legal battle
Attorneys for the state of Missouri have subpoenaed physicians from the state's only abortion clinic amid a legal fight over the facility's license
9:58AM ( 46 minutes ago )
The Latest: Trump predicts passage of Brexit deal, lauds May
President Donald Trump is predicting the eventual passage of a Brexit deal
9:57AM ( 47 minutes ago )
AP Business
South Africa's economy plummets by most in a decade
South Africa's economy plummets by most in a decade, challenging new administration's reforms
9:19AM ( 1 hour ago )
The Latest: Khan doesn't want 'playground fight' with Trump
London Mayor Sadiq Khan says he's not interested in having a "childish playground fight" with President Donald Trump despite harsh words exchanged between them in recent days
9:05AM ( 1 hour ago )
China issues travel alerts, slams US 'interference'
China issues travel alerts, slams 'interference' in its own affairs
8:52AM ( 1 hour ago )
AP Business - Economy
CVS announces further expansion into health care services
CVS Health is pushing deeper into customer health again with plans to add dietitians, medical equipment and space for the occasional yoga class to 1,500 stores
9:00AM ( 1 hour ago )
World shares skid after technology sell-off hits Nasdaq
World shares skid after technology sell-off hits Nasdaq
4:01AM ( 6 hours ago )
Senate report reveals nearly 400 troubled nursing homes
The federal government has been keeping secret the names of hundreds of nursing homes that had serious ongoing health or safety problems
12:23AM ( 10 hours ago )
AP Business - Industries
Stocks end rocky month lower as Trump widens trade war
Stocks closed out a turbulent month on Wall Street with another round of sharp losses Friday after President Trump announced plans to expand a trade war to Mexico
5:27PM ( 3 days ago )
Court OKs expedited appeal in NY Trump bank records case
An appeals court says it will speedily consider President Donald Trump's challenge to congressional subpoenas seeking financial records from two banks he did business with
9:59AM ( 4 days ago )
The bond market is getting another whiff of a recession
Bonds are supposed to be the boring corner of the finance world, with their focus on interest rates and spreads, but even high flying stock investors stop and pay attention when bonds fall into a particular, concerning pattern
11:02AM ( 4 days ago )
AP Business - Financial Services
Renault to respond to Fiat Chrysler marriage proposal
French carmaker Renault looks likely to give a tentative "yes" to Fiat Chrysler's merger offer
10:28AM ( 15 minutes ago )
Trump says Mexico tariffs 'likely,' Mexico predicts a deal
President Donald Trump says he expects to begin hitting Mexico with tariffs next week in a dispute over illegal immigration
10:28AM ( 16 minutes ago )
China handles Tiananmen anniversary with usual silence
China has gone into customary lockdown for the 30th anniversary of a crackdown on pro-democracy protesters in 1989, a reminder of the ruling Communist Party's emphasis on stability above all
10:24AM ( 20 minutes ago )
The Latest: Trump says Johnson would be good prime minister
President Donald Trump has reiterated his opinion that Boris Johnson would make a good UK prime minister and has praised another contender for the job, Foreign Secretary Jeremy Hunt
10:22AM ( 21 minutes ago )
Trump turns from pomp to business in UK visit
Moving from pageantry to policy during his state visit to Britain, President Donald Trump on Tuesday urged Prime Minister Theresa May to "stick around" to complete a US-U.K. trade deal
10:22AM ( 21 minutes ago )