Despite a fresh round of calls to cut interest rates, the Federal Reserve maintained its distance from any short-term influences on monetary policy.
In a speech delivered at the Council on Foreign Relations in New York, Federal Reserve Chairman Jerome Powell reiterated that the central bank still sees US growth prospects as strong, with unemployment low and inflation near the Fed’s 2% annual target, but that policymakers are debating whether or not uncertainty over a number of issues—including trade—support a case for lowering rates.
“The question my colleagues and I are grappling with is whether these uncertainties will continue to weigh on the outlook and thus call for additional policy accommodation,” Powell said.
“Many [Federal Open Market Committee] participants judge that the case for somewhat more accommodative policy has strengthened. But we are also mindful that monetary policy should not overreact to any individual data point or short-term swing in sentiment. Doing so would risk adding even more uncertainty to the outlook. We will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion.”
At its latest meeting, the central bank’s policy-setting Federal Open Market Committee signaled rate cuts beginning as early as July and said it is ready to battle growing global and domestic economic risks as it took stock of rising trade tensions and growing concerns about weak inflation.
Although interest rates are currently unchanged and policymakers for the central bank suggested rate cuts would have been premature before now, there has been a noticeable shift in sentiment from its previous policy meeting. Regardless of what policymakers have said, many investors are expecting rate cuts this year.
Some experts think that the comments by FOMC committee member James Bullard were more telling than anything Powell said afterward.
“Bullard, he’s the most dovish member of the committee. It would not have surprised me if he had come out and said, yes I think 50 basis points is warranted. So the fact that he outright says that the conditions do not warrant it at this point, I think is very, very significant,” Mary Ann Hurley, vice president of fixed income trading at D.A. Davidson, told Reuters.
Although the Federal Reserve has been under political pressure to cut rates, Powell reiterated that the Federal Reserve is an independent body, and doesn’t want to respond to any political influence or short-term data when making a decision.
“The Fed is insulated from short-term political pressures -what is often referred to as our ‘independence,’” Powell said in his speech. “Congress chose to insulate the Fed this way because it had seen the damage that often arises when policy bends to short-term political interests. Central banks in major democracies around the world have similar independence.”