Fed Chair Powell Weighs Whether Cut Will Be Needed as Risks Loom

Jerome H. Powell, chairman of the Federal Reserve, said Tuesday that the central bank is weighing whether an interest-rate cut will be needed as trade risks stir economic uncertainty and inflation lags. But he made clear that the institution considers itself independent from the White House and President Trump, who continues to push publicly for a rate cut.

Mr. Powell said the case for a rate cut has strengthened somewhat given that economic “crosscurrents have re-emerged, with apparent progress on trade turning to greater uncertainty and with incoming data raising renewed concerns about the strength of the global economy.”

But he stopped short of saying a cut was guaranteed, noting that the Fed would continue to watch economic events unfold and would avoid reacting to short-term issues.

“The question my colleagues and I are grappling with is whether these uncertainties will continue to weigh on the outlook and thus call for additional policy accommodation,” Mr. Powell said at a Council on Foreign Relations event in New York.

The Fed is watching warily as global trade flows slow, manufacturing indexes sag and confidence gauges wobble against continuing uncertainty about Mr. Trump’s trade war. Because interest rates are already historically low, the Fed wants to take a risk-management approach to setting policy, fending off any softening in growth before it becomes serious.

That inflation has never sustainably hit the Fed’s 2 percent target, formally in place since 2012, heightens the case for moving pre-emptively — rather than waiting and risking making a move too late. Inflation came in at just 1.5 percent in the year through April.

“That undershoot looks like it might be more persistent than we had hoped, and that is not a good thing,” Mr. Powell said in a question-and-answer session with Neil Irwin, a senior economic correspondent with The New York Times. “It’s another argument, frankly, for providing more policy accommodation.”

The Fed’s policy conversation is happening against a contentious political backdrop. Mr. Trump has been loudly criticizing the central bank for keeping rates too high, saying that it is weakening growth and putting the United States on an uneven playing field with trading partners with lower interest rates. Mr. Powell emphasized the central bank’s independence on Tuesday.

“We are a strictly nonpolitical agency,” he said in response to a question about Mr. Trump’s continuing attacks. “We’re human, we’ll make mistakes,” he added, but “we won’t make mistakes of integrity or character.”

Mr. Trump on Monday tweeted that the Fed “blew it” by increasing rates last year, and he has even toyed with the idea of demoting Mr. Powell to the role of governor. Mr. Trump has alternately implied that such a move would depend on Mr. Powell’s actions and denied suggesting a demotion. He said he thought he had the legal authority to do so if he chose, though his authority is unclear.

[Mr. Trump’s feud with the Fed is rooted in history.]

Politics aside, economic developments have prompted a growing number of Fed officials to expect rate cuts before the end of the year, according to economic projections released after their June 19-20 meeting. Investors in fed funds futures had fully priced in a rate cut next month after that meeting. Stocks indexes fell after Mr. Powell’s speech was released Tuesday, suggesting that his characterization of rate cuts as a “whether” rather than a definite plan disappointed some traders.

But Mr. Powell’s Fed colleagues are with him as he watches incoming data warily.

“The economy had solid momentum, but now it’s pedaling against some pretty significant headwinds,” Mary Daly, president of the Federal Reserve Bank of San Francisco, said in an interview with The New York Times on Tuesday. “Let’s watch the next six weeks and see if the data reverse,” and “see how the uncertainty resolves itself as we get more information about trade negotiations, and finally, let’s see what other countries are doing to offset potential weaknesses.”

Ms. Daly, who is not currently a voting member but participates in discussions about rate policy, would not say whether she has projected rate cuts this year. But she said she’s concerned that, with more muted growth, it might take longer to push inflation back toward the Fed’s 2 percent goal.

“The bottom line for me is that I want to sustain the expansion so that we can also push inflation back up to our target,” Ms. Daly said.

Wage growth is showing signs of slowing, and several measures of inflation expectations are softening. That increases the risk that price growth will remain permanently below the central bank’s goal, which is meant to provide a buffer to ward off economy-harming deflation.

Growth abroad has also shown signs of stalling. That pullback owes partly to the continuing tariff war between the United States and China, which could arrive at a turning point this week, when Mr. Trump is expected to meet with President Xi Jinping at the Group of 20 nations summit in Japan.

The United States has slapped tariffs on $250 billion worth of goods already, and Mr. Trump has threatened to extend them to another $300 billion of goods — practically all remaining imports from China — if the two nations can’t reach an agreement. This would be the first meeting between the two leaders since talks broke off in May.

“The amount of tariffs that are in place right now are not large enough to represent, itself, a major threat to the economy,” Mr. Powell said Tuesday. “The concern is more around a loss of confidence or financial market reaction.”

Mr. Powell also delivered a warning to Facebook, which is developing a new cryptocurrency called Libra, saying the financial product would require rigorous scrutiny. “We’re looking at it very carefully,” he said.

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