The Latest: Powell on unemployment and inflation
WASHINGTON (AP) — The Latest on Federal Reserve Chairman Jerome Powell’s presentation of the Fed’s semi-annual monetary report to Congress. (all times local):
Federal Reserve Chairman Jerome Powell says before the Senate Banking Committee that very low unemployment rates no longer necessarily push up inflation. A relationship between the two existed “50 years ago” but that has gotten “weaker and weaker and weaker,” Powell said.
Powell’s comments in a second day of testimony on Capitol Hill suggest the Fed is more comfortable keeping short-term interest rates low and suggests that Fed policymakers may cut rates at its meeting later this month. For decades, economists assumed that low unemployment — such as the current jobless rate of 3.7% — meant that employers would have to raise pay to attract and keep workers, and in turn would then raise prices to cover higher wage costs. Many Fed officials historically would then support raising interest rates to forestall what was called a “wage-price spiral.”
But now, Powell says, the unemployment rate can likely fall much further than in the past without sparking inflation, which means that interest rates can also stay lower.
“I think we’re learning all of those things,” he says.
Federal Reserve Chairman Jerome Powell, testifying for a second day before Congress, is delivering the same message: that the central bank is prepared to cut interest rates to support the economy, raising hopes that the first reduction in its key policy rate in a decade could happen later this month.
Powell’s prepared testimony to the Senate Banking Committee is identical to the remarks he delivered Wednesday before the House Financial Services Committee on Wednesday.
In his opening comments, Powell says that “uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook.”