Federal Reserve Chairman Jerome Powell opened the door Wednesday to the possibility that the central bank could keep interest rates steady over the coming months, rather than steadily raising them as expected.
“While [the Fed]’s projections are based on our best assessments of the outlook, there is no preset policy path,” Powell said in prepared remarks delivered before the Economic Club of New York.
“We know that moving too fast would risk shortening the expansion,” Powell explained. “We also know that moving too slowly, keeping interest rates too low for too long, could risk other distortions in the form of higher inflation or destabilizing financial imbalances. Our path of gradual increases has been designed to balance these two risks, both of which we must take seriously.”
President Trump has repeatedly criticized the Fed for raising interest rates. The Fed has raised its short-term interest rate target three times this year, and is expected to implement another rate hike at its December meeting.
[Related: Fed officials plan more rate hikes, despite Trump’s criticisms]
Despite opening the door to slowing planned rate hikes based on economic data, Powell noted that he and his colleagues see a strong economy that could lead to more increases in the short-term interest rate.
“Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy‑‑that is, neither speeding up nor slowing down growth,” said Powell, adding that both the Fed and private economists see continued strong economic growth, as well as low unemployment and low inflation, in the near future.
The Fed chair also touted the overall strength of the financial system in his remarks. Though a financial stability report published by the Fed earlier on Wednesday noted that a number of assets were above historic prices, particularly corporate debt and commercial real estate, Powell said the Fed did not see dramatic overvaluation in the stock market.
“It is important to distinguish between market volatility and events that threaten financial stability,” said Powell. “From the financial stability perspective, however, today we do not see dangerous excesses in the stock market.”
Powell compared the to areas of concern — such as high corporate debt and trade uncertainty –to blood pressure or cholesterol in the annual health check-up of a older, but healthy, patient.
“With corporate debt, the United States has not faced a massive credit boom like that experienced with residential mortgages before the recent crisis,” said Powell, responding tacitly to a comparison made by Sen. Elizabeth Warren D-Mass., among others. The Fed chair downplayed the relatively high levels of corporate debt as a byproduct of the prolonged economic expansion, and still less than the levels of the late 1980s and early 1990s.
The Fed’s stability report, released earlier Wednesday, raised concerns that a geopolitical shock, possibly from a downturn to the global economy caused by trade disputes or a Brexit without transitional agreements between the U.K. and E.U., could cause the next financial crisis.
In questions following his prepared remarks, Powell noted that the last several recessions came from either the financial sector or unexpected international incidents, such as the the 9/11 terrorist attacks or the oil price shock that accompanied the 1990-91 Gulf War.
“I don’t know what [the next international shock] will be. I don’t,” said Powell, during questions following his prepared remarks.
But he remained confident that the U.S. financial system is in position to weather those shocks, and a potential economic downturn.
“The risks of destabilizing runs are far lower than in the past. The institutions at the heart of the financial system are more resilient,” said Powell.
