US Federal Reserve chair Jerome Powell. Picture: AFP/NICHOLAS KAMM
US Federal Reserve chair Jerome Powell. Picture: AFP/NICHOLAS KAMM

Washington — The US economy is likely to continue to grow, but faces continued risks from the global slowdown and trade disputes, which have already dampened expansion, US Federal Reserve chief Jerome Powell said on Wednesday.

In the first of back-to-back days of testimony before Congress, Powell re-affirmed that the central bank is on hold after cutting the benchmark lending rate three times in 2019.

After providing that stimulus to the economy, Powell said, “my colleagues and I see a sustained expansion of economic activity, a strong labour market, and inflation near our symmetric 2% objective as most likely”.

However, “sluggish growth abroad and trade developments have weighed on the economy and pose ongoing risks”, he told the joint economic committee.

He also flagged his concerns about an “unsustainable” government budget and “high and rising debt”, which could limit policymakers’ ability to boost spending as needed in an economic downturn.

US GDP growth slowed to 1.9% in the third-quarter from 2.5% in the previous three months and while that was partly due to a 40-day strike at General Motors, trade conflicts have also weakened business investment and “weighed on exports and manufacturing this year”, Powell said in his prepared testimony.

On Tuesday, US President Donald Trump again accused the Fed chief of cutting rates too slowly, even indicating he would like to see negative interest rates used in Europe and Japan where economic growth has been persistently sluggish.

However, Powell repeated the message he delivered after the third rate cut in late September, saying: “We see the current stance on monetary policy as likely to remain appropriate as long as incoming information about the economy remains broadly consistent with our outlook.”

The Fed raised the key borrowing rate four times in 2018, but reversed course in 2019 as Trump’s trade conflicts dragged on and began to impact the real economy.

Powell said the rate cuts were designed to support continued growth “and to provide some insurance against ongoing risks”. And while he consistently declines to respond to Trump’s criticisms, in a veiled aside to start his testimony he said the Fed has been granted independence to conduct monetary policy “based on facts and objective analysis”.

AFP