Jerome Powell’s September 18, 2019 Press Conference – Notable Aspects

On Wednesday, September 18, 2019 FOMC Chairman Jerome Powell gave his scheduled September 2019 FOMC Press Conference. (link of video and related materials)

Below are Jerome Powell’s comments I found most notable – although I don’t necessarily agree with them – in the order they appear in the transcript.  These comments are excerpted from the “Transcript of Chairman Powell’s Press Conference“ (preliminary)(pdf) of September 18, 2019, with the accompanying “FOMC Statement” and “Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents, September 2019.“

From Chairman Powell’s opening comments:

CHAIR POWELL.  Good afternoon everyone, and welcome.

My colleagues at the Federal Reserve and I are dedicated to serving the American people.  We do this by steadfastly pursuing the goals Congress has given us—maximum employment and stable prices.  We are committed to making the best decisions we can, based on facts and objective analysis.  Today, we decided to lower interest rates.  As I will explain shortly, we took this step to help keep the U.S. economy strong in the face of some notable developments and to provide insurance against ongoing risks.  

The U.S. economy has continued to perform well.  We are into the 11th year of this economic expansion, and the baseline outlook remains favorable.  The economy grew at a 2½ percent pace in the first half of the year.  Household spending—supported by a strong job market, rising incomes, and solid consumer confidence—has been the key driver of growth.  In contrast, business investment and exports have weakened amid falling manufacturing output.  The main reasons appear to be slower growth abroad and trade policy developments—two sources of uncertainty that we have been monitoring all year.

Since the middle of last year, the global growth outlook has weakened, notably in Europe and China.  Additionally, a number of geopolitical risks, including Brexit, remain unresolved.  Trade policy tensions have waxed and waned, and elevated uncertainty is weighing on U.S. investment and exports.  Our business contacts around the country have been telling us that uncertainty about trade policy has discouraged them from investing in their businesses.  Business fixed investment posted a modest decline in the second quarter and recent indicators point to continued softness.  Even so, with household spending remaining on a solid footing and with supportive financial conditions, we expect the economy to continue to expand at a moderate rate.  As seen from FOMC participants’ most recent projections, the median expectation for real GDP growth remains near 2 percent this year and next before edging down toward its estimated longer-run value.


Today’s decision to lower the federal funds rate target by ¼ percent to 1¾  to 2 percent is appropriate in light of the global developments I mentioned, as well as muted inflation pressures.  Since our last meeting, we have seen additional signs of weakness abroad and a resurgence of trade policy tensions, including the imposition of additional tariffs.  The Fed has no role in the formulation of trade policy, but we do take into account anything that could materially affect the economy relative to our employment and inflation goals.

Jerome Powell’s responses as indicated to the various questions:

NICK TIMIRAOS.  This to your own view.  Because the data is to some extent lagged, especially when you have these risks on the horizon, and the markets obviously think that these risks could materialize more than what you and your colleagues are projecting in the dot plot today.  So, I wonder, where are your own views about the tension between risk management, which implies some degree of data independence, and this idea of being data dependent.

CHAIR POWELL.  Yeah, so, I’ll try to get at that this way.  I think that the idea that if you see trouble approaching on the horizon you steer away from it if you can.  I think that’s a good idea in principle.  I think history teaches us that it’s better to be proactive in adjusting policy if you can.  I think applying that principle in a particular situation is where the challenge comes.  So, I told you were the committee, the bulk of the committee is going meeting by meeting, and I think the main takeaway is that this is a committee that has shifted its policy stance repeatedly, consistently through the course of the year to support economic activity as it is felt that it’s appropriate.  The beginning of the year, we were looking at further rate increases, then we were patient, and then we cut once, then we cut again.  And I think you’ve seen us being willing to move based on data, based on the evolving risk picture.  And I have no reason to think that will change, I think.  But it will continue to be data dependent, and dependent data includes the evolving risk picture.  That’s where I am, and that’s where I think the bulk of the committee is.


HOWARD SCHNEIDER.  But just to follow, if I could, there were a number of arguments in July around the reason for cutting rates.  Have any of those gotten substantially weaker or changed around the table? 

CHAIR POWELL.  No, well I think, if you look at the U.S., if you look at the U.S. economy, the U.S. economy has generally performed roughly as expected, roughly.  The consumer is spending at a healthy clip.  I’d say business fixed investment and exports have weakened further, and I’d say the manufacturing PMI suggests more weakness ahead.  The labor market is still strong though.  So, generally that is the same.  I think if you look at global economy I think is weakened further in the EU and China, and I think, you know, trade policy developments have been a big mover of markets and of sentiment during that intervening period.  So, that’s why I think what, that’s what’s happened over the intervening period, and you know, different people around the table have different perspectives, as you obviously know.


DONNA BORAK.  Donna Borak.  Hi, Chairman Powell.  Donna Borak with CNN.  With the rate cut today and potentially another modest adjustment coming down the road, do you worry about lessening the Fed’s firepower should there be a recession?  And is there any scenario in which you would envision rates drifting lower into negative territory?  And are there any other tools that you could use before having to go there?  Thanks.

CHAIR POWELL.  You know, in terms of firepower, I think the general principle, as I mentioned earlier, is it can be a mistake to try to hold onto your firepower until a downturn gains momentum, and then—so, there’s a fair amount of research that would show that that’s the case.  Now, I think that principle need to be applied carefully to the situation at hand.  What we believe we’re facing here—what we think we’re facing here—is a situation which can be addressed and should be addressed with moderate adjustments to the federal funds rate.  As I mentioned, we are watching carefully to see whether that is the case.  If in fact the economy weakens more, then we’re prepared to be aggressive, and we’ll do so if it turns out to be appropriate.  

You mentioned negative interest rates.  So, negative interest rates is something that we looked at during the financial crisis and chose not to do.  We chose to—after we got to the effective lower bound, we chose to do a lot of aggressive forward guidance and also large-scale asset purchases, and those were the two unconventional monetary policy tools that we used extensively.  We feel that they worked fairly well.  We did not use negative rates, and I think if we were to find ourselves at some future date again at the effective lower bound—again, not something we are expecting—then I think we would look at using large-scale asset purchases and forward guidance.  I do not think we’d be looking at using negative rates.  I just don’t think those will be at the top of our list.  

By the way, we are in the middle of a monetary policy review where we’re looking through all of these questions about the longer-run framework, the strategy, tools, and communications, and we expect that to be completed sometime around the middle of next year.

DON LEE.  Don Lee with the L.A. Times.  How much—and can you talk about the mechanism in which the two rate cuts will affect the real economy?  And how much—to what extent—will it offset the negative effects of the trade uncertainty and tensions?

CHAIR POWELL.  So, in terms of how our rate cuts will affect the real economy.  First, we think monetary policy works with—as Friedman said—long and variable lags.  So, I think the real effects will be felt over time.  But, you know, we think that lower interest rates will reduce interest burden for borrowers, so that interest-sensitive things like housing and durable goods and other things like that—cars—it supports purchases of those.  Just, again, broadly, more accommodative financial conditions—higher asset prices.  That’s—the models and the data show—that that’s another powerful channel.  

I also think there a confidence channel.  You see—you see household and business confidence turn up when financial conditions become more accommodative.  So, I think through all of those channels monetary policy works.  It isn’t, you know, precisely the right tool for every single possible negative thing that can happen to the economy, but nonetheless, it broadly works, and you know, we’re going to use the tool we have.  And if it comes to it, we’ll use all of our tools.  So, that’s how we think it works and how we think it’s working.


GREG ROBB.  Thank you, Chairman Powell.  Greg Robb from MarketWatch.  I’m kind of hearing two things from you.  You’re saying that the economy is doing well, but there’s this sense with people that the economy is actually starting to slow now.  And people are—more and more you talk—there’s talk about recession, and even the Fed thinks the downside risks are rising.  So, is the economy over the next year—between now and the end of next year—do you think GDP growth is going to hold steady and the unemployment rate.  Could you talk about just—how do you see the economy evolving over the next year?

CHAIR POWELL.  You know, so, I think, and my colleagues and I think all think that the most likely case is for continued moderate growth, continued strong labor market, and inflation moving back up to 2 percent.  And I think that’s, by the way, widely shared among forecasters.  You know, the issue is more the risks to that.  You have downside risks here, and we’ve talked about them.  It’s that global growth will have an effect on U.S. growth over time, less so than for many other economies, but still, there’s a sector of our economy that’s exposed to that.  Trade policy uncertainty also has—apparently has an effect.  So—and you can see some weakness in the U.S. economy because of all that.  But nonetheless, so the job of monetary policy is to adjust both to ensure against those downside risks but also to support the economy in light of the existing weakness that we do see.  So, we’re not—as I mentioned—we’re not, we don’t see a recession.  We’re not forecasting a recession.  But we are adjusting monetary policy in a more accommodative direction to try to support what is in fact a favorable outlook.



The Special Note summarizes my overall thoughts about our economic situation

SPX at 3006.79 as this post is written