Presenting a united front at a conference in Atlanta on Friday, the chairman of the Federal Reserve and two predecessors praised the current state of the economy while issuing a full-throated defense of the institution's independence.
Federal Reserve Chairman Jerome Powell has been the target of criticism from President Donald Trump, who accuses the Fed of contributing to the stock market decline by raising interest rates. The 106-year-old agency controls benchmark interest rates and a range of monetary tools, but does its best to guide the economy toward healthy growth without regard to politics, Powell said during the annual meeting of the American Economic Association.
“People should know that the Fed has a very strong culture toward acting in a non-political way,” he told the crowd of more than a thousand people. “It is very much in the DNA of the Fed.”
He spoke Friday during an hour-long panel alongside Janet Yellin, who preceded him as chair, and Ben Bernanke, who was in that role during the financial crisis of 2008.
Even though Powell was appointed by Trump, according to some news accounts, the president has considered trying to fire the Fed boss, although he may not have the power to do so. Powell said Friday that if the president asked for his resignation, he would not provide it.
The rate hikes, which make borrowing more expensive, are used by the Fed to tamp down inflation. But many point out that, in the past, they also have stifled spending enough to flip the economy into recession.
Powell said he remains upbeat and has not made up his mind about further rate hikes this year.
“There is no preset path for policy,” he said. “We are always prepared to shift economic policy and to shift it significantly.”
The Fed is “listening carefully to the message that the market is sending,” he said.
Powell spoke Friday after release of the monthly government report that showed a gain of 312,000 jobs in December – about twice as many as had been expected. The report also showed wages rising. While the unemployment rate ticked up to 3.9 percent, that increase was caused by a surge of new workers, he said.
That report was evidence that the economy is chugging along steadily and can probably more easily handle more rate hikes.
But that robust picture contrasts with a report from the Institute for Supply Management that showed a drop in manufacturing and with high-profile corporate setbacks like those of Apple, which announced a shortfall in profits. In addition, there's concern that China's economy is stumbling, something that could hurt many U.S. companies.
Powell also recognized the “tension” between upbeat data like the jobs report and the skittish behavior of a pessimistic market.
Wall Street's fears of recession are wrong – or at least, premature, he said. "I think the markets are pricing in downside risk, and I think the markets are well ahead of the data."
That is, they are anticipating a downturn that might not come for a while.
The stock market since summer has roller-coastered, with a series of climbs and – more frequently – drops. An hour after Powell spoke, the Dow Jones Industrial Average was up about 500 points. The index ended the day at 23,433.16, up 746.94 points on the day.
Yellin endorsed Powell’s view of the economy, arguing that the fundamentals are solid.
The housing market has been relatively healthy, consumer debt is controlled, and low oil prices have provided many households more spending money, she said. "Consumer spending at Christmas was strong."
Bernanke said the expansion seems likely to continue through next summer, becoming the oldest in U.S. history.
“Expansions don’t die of old age, they get murdered instead,” Bernanke said. “Right now, I don’t see anyone lurking or hiding behind the curtain.”
While none of the panelists mentioned the president by name, Yellin and Bernanke described their experience in ways that could only be seen as contrast with Trump’s withering critique of Powell.
Yellin said previous presidents had refrained from public criticism of the Fed, a restraint that bolstered public trust of the Fed’s policies.
Bernanke, who served under both Presidents Bush and Obama, said, “Both of them were very respectful of the Fed’s policies in making changes in the short-term interest rates.”
