Business

Fed chairman Powell tells a joke, sort of

'If we do something wrong, it's clearly my fault'

Reuters

Federal Reserve Chairman Jerome Powell speaks during a news conference in Washington, D.C., in September.
Reuters Federal Reserve Chairman Jerome Powell speaks during a news conference in Washington, D.C., in September.

The Federal Reserve Bank is often under a microscope from its fans and detractors. But for most of the population, it’s a mysterious black box.

As part of an ongoing lecture series, Fed Chairman Jerome Powell went to Dallas earlier this month to try to demystify the Fed.

Dallas Fed Chairman Robert Kaplan hosted the public event attended by about 500 people, many of whom said they work in finance.

“Central banking can be pretty far from people’s daily lives,” Powell said. “... The public doesn’t know that much, and that’s not on them.”

Both men said they wanted to shed some of the mystery of central banking and also field questions from the public on trade, the global economy and, indirectly, President Donald Trump.

The Fed chairman’s words are among the mostly closely followed and influential in the financial world.

“The No. 1 thing we’ve got to do is earn and sustain the trust of the public,” Powell said.

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“And that means, be transparent about what we’re doing and why we’re doing it and speak in ways that the public can understand.”

Trump wasn’t mentioned by name at the event, but he still loomed large over the proceedings.

The president has been critical of Powell in recent months for raising the federal funds interest rate, characterizing those actions as “loco” and “out of control.”

One audience member asked Powell about being “mentioned by political leaders over the past several months.”

“Subtle,” Kaplan said over audience laughter.

Trump previously wrote on Twitter that the Fed was penalizing the U.S. economy by tightening monetary policy.

The president also said in a CNBC interview that he wasn’t “thrilled” with the rate increases, although he described Powell as a “very good man.”

But later, he told Reuters, “Am I happy with my choice? I’ll let you know in four years.”

Powell served in George H.W. Bush’s Treasury Department but was appointed to the Federal Reserve Board of Governors by President Barack Obama.

Trump nominated Powell to be Fed chairman in November 2017.

Although the Fed chairman is chosen by the president, Powell, throughout the evening, de-emphasized the White House’s role in his job.

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He pointed out that the central bank was created by Congress and that the legislative branch has oversight.

The Federal Reserve’s job is to strive for maximum employment, stable prices and a stable financial system, Powell said. And he said he’s done that in a “nonpartisan, professional way.”

“We have the tools to do it, and we have the protections to allow us to do that without political involvement,” Powell said.

“That’s our job. That’s our sole focus. We don’t try to control things we don’t control.”

But Powell accepted the fact that he’s the focal point of any Fed criticism. Trump has said he’ll keep the heat on the Fed as long as it continues raising interest rates.

“If we do something wrong, it’s clearly my fault,” Powell said, in one of the night’s several laugh lines.

Housing

Real estate is a sector that follows the Fed’s actions closely. Changes in the Fed’s rate often have a widespread effect on consumer interest rates, including credit cards, car loans and mortgages.

In the Dallas-Fort Worth area, home prices have increased about 5 percent this year, or roughly half of last year’s jump.

There also are reports of the number of sales flattening or declining in some areas.

Powell said he’s aware that builders are pointing to Fed rate increases as a reason for a real estate market slowdown.

But he said that’s just one element.

“There’s a lot of factors weighing on home building,” Powell said.

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“It’s material costs. It’s labor scarcity. It’s difficulty in finding lots. It is rates as well.”

Mortgage rates, although rising, are still at historically low levels. Powell joked that rates have been so low for so long that “some people have never seen a 5 percent mortgage.”

The last time the benchmark 30-year fixed mortgage rate hit 5 percent was in April 2011, according to Bankrate.com data.

But, as an interest-sensitive sector, Powell said he takes their concerns seriously.

“They’re facing a softening environment,” he said, “and so we’re monitoring that.”

Interest rates

There was no bombshell about interest rates, the issue most closely associated with the Fed.

Both Powell and Kaplan made cases for the continuation of “normalizing monetary policy.”

After about eight years without an increase, the Fed started gradually raising its rate in 2015.

The Fed has now raised its rate three times this year, most recently from 2 to 2.25 percent in September.

And there is an expectation among observers that the fourth increase will come in December.

“We kept them (rates) low for quite a long time to give the economy every chance to breathe and recover, regain health,” Powell said.

Now, he said, the unemployment rate is 3.7 percent with 3 percent economic growth.

Inflation is also at the Fed’s target.

Powell said the Fed’s job now is to find that middle ground between keeping the rate low for too long, which could fuel inflation, or raising the rate too soon and “prematurely (terminating) an expansion.”

“We haven’t done that,” Powell said.

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“We’re at a point now where we have to take both of those risks very seriously. That’s why we’ve been raising rates again quite gradually.”

Trade

When asked about trade — another sensitive political question — Powell spoke carefully and again elicited laughter.

Trump’s trade war with China includes about $360 billion worth of products and has divided some White House advisers.

“We don’t have responsibility for trade policy,” Powell said. “That’s outside of our lane.”

And while Powell said trade is a positive for the U.S., he also emphasized that it “needs to be both free and fair.”

“If this process that’s going on right now winds up with lower tariffs and better observance of agreed trade rules, then that will be good for our economy and good for the world economy,” Powell said.

But he said it’ll hurt the U.S. economy if it leads to “widespread protectionism.”

In the short term, however, he said, “In theory, you could see a little slower growth. And to the extent more and more products are subject to tariffs, you can see a little bit higher inflation and a little bit lower growth.”

Financial worries

Powell generally was upbeat about the economy but pointed to a few areas of concern. He said that 2017 was a “good, strong year” for the global economy.

“There was a lot of optimism at the beginning of this year,” Powell said. “This year has seen a gradual chipping away at that picture.

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“You see a bit of a slowdown. Not a terrible slowdown. You still see solid growth, but you kind of see growing signs of a bit of a slowdown.

“And it is concerning.”

He’s also keeping a close watch on corporate borrowing, which has increased.

In other areas, such as households and financial institution, debt is down.

Powell said the effects of the tax cuts and federal spending increases will wear off and affect growth.

And he continues to be concerned about lagging U.S. educational performance, which he said “just flattened out” in the 1970s.

“The only way you can compete in this global economy is by having the best workers and the most educated workers with the skills and aptitudes to benefit from technology,” Powell said.

And in the most emphatic statement of the night, Powell said the “U.S. is on an unsustainable fiscal path” when it comes to government debt.

“That has been true for a long time,” he said.

“That is associated with our uniquely expensive health care delivery system and our aging population.”

But even those nagging concerns were overshadowed by what’s been a booming economy.

“I want leave on a note of optimism about our economy,” Powell said. “We’ve been through a difficult time, and we’ve faced difficult times before. We’re in a good place now.

“I do believe our economy can grow and grow faster. I think you always want to be on the optimistic side of this economy.”

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