The Fed's Powell: US Economic Growth Still Positive at a Healthy Level
The Fed's Governor Jerome Powell - Photo by Federal Reserves.

JAKARTA (TheInsiderStories) – The number of job creation United States (US) announced on Friday last week was surprisingly showing a slowdown in the US economy. The Federal Reserve (The Fed) was scapegoated for being the biggest threat to US economic prosperity. Since being appointed last four year, the Fed has raised interest rates four times, which is considered a “crazy” policy by President Donald Trump.

The Fed Governor Jerome Powell responded by saying that the Fed was directed to take and carry out policies in a way that was entirely non-political, serving all Americans, so that the Fed worked independently.

“We are independent in that sense. Our decisions on rates can’t be reversed by any other part of government. Our accountability runs through the elected representatives and the oversight committees in Congress,” he told CBS News on Sunday (03/10).

Regarding the policy of raising interest rates, Powell explained that the Federal Open Market Committee has gone through strong discussions and various perspectives. Therefore, the Fed wants to continue to maintain inflation at 2 percent. But Powell said that he was very flexible and kept paying attention to the balance of the inflation rate so that it should not go down more than 2 percent in a symmetrical way.

In an interview with reporter Scott Pelley, Powell actually saw the US economy in a good position. By setting a policy to turn off inflation, it will remain patient to change our interest rate policy. In fact, in the past 90 days, even though the global economy has slowed further, the US economy has continued to show good performance.

“Generally speaking, the US economy is coming off a very strong year last year. We had growth just a touch – higher than 3 percent. We have high levels of employment, low levels of unemployment, wages are moving up. Consumer confidence is high, business confidence is high. We’ve seen a bit of a slowing, but I would say the principal risks to our economy now seem to be coming from slower growth in China and Europe and also risk events such as Brexit,” he said.

It was reported earlier that 7 million US people had missed out on their car payments, a record that was unprecedented. Likewise, retail sales declined in December, becoming the fastest pace since 2009.

But Powell considers that car sales have been quite high for several years. So the whole body of car loan outstanding is far greater than before. Powell also shows that spending has resurfaced in January. Therefore, it will keep a close watch on developments in the next month.

Powell acknowledges that this year’s growth will be slower than last year. Last year was the highest growth experienced by the US since the financial crisis in more than 10 years. This year, he hopes growth will continue to be positive and continue at a healthy level.

Last year US economic growth was slightly above 3 percent. And this year, Powell can’t determine whether growth can reach 4 percent. But he explained several important sectors that could drive economic growth for the better. For example, how fast the workforce grows and the speed of productivity growth.

“We have an older population now. And our labor force is growing more slowly. It’s growing less than 1 percent a year. So it’s not likely that we could sustain the kinds of growth rates that we had when population and the labor force was growing more quickly,” he added.

With that, Powell acknowledges that achieving 4 percent of economic growth is still difficult because labor growth is still slow.

Powell also said that the American banking system is now far more powerful and resilient than it was before the financial crisis. Especially the largest banks have double or more capital, which means resources to absorb losses. In addition, the Fed has asked them to go through a resolution plan if it fails. There are plans for what to do, which does not involve taxpayer bailouts.

Therefore, Powell believes the collapse of the financial system as happened in 2008 could not happen again because the current financial system is much tougher.

Powell saw that US had a large number of extraordinary people in the main years of their work who were not in the workforce. The US has a lower labor force participation rate than almost every other developed country.

However, the current reality shows that US has unemployment near its 50-year low, wages are growing at a rate of more than 3 percent and if expansion lasts another three months, it will be the longest in history in 10 years. So, he noted, there is no reason why the US economy cannot continue to grow.

Written by Daniel Deha, Email: daniel@theinsiderstories.com

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