The Chair of United States (US) Federal Reserves (Fed) Jerome Powell highlighted that the central bank has a limited space to form its policy - Photo by AP

Jakarta (TheInsiderStories) -The Chair of United States (US) Federal Reserves (Fed) Jerome Powell highlighted that the central bank has a limited space to form its policy. While, President Donald Trump labeled him as an American enemy.

In his speech in Jackson Hole, Kansas City on Friday (08/23), he noted there are three factors that weighing US economic, the trade policy uncertainty is one of them. He added, “Trade policy uncertainty seems to be playing a role in the global slowdown and in weak manufacturing and capital spending in the US.”

He also strengthened the point that setting trade policy is the business of congress and the administration not the Fed. Powell opined, “Monetary policy is a powerful tool that works to support consumer spending, business investment, and public confidence, it cannot provide a settled rulebook for international trade.”

However, he continue, the central bank will try to look thoroughly how the trade uncertainty affect the outlook before adjusting the policies. Also, other elements which are global slowdown, notably in Germany and China, the growing possibilities of a hard Brexit, the rising tensions in Hong Kong, and the dissolution of the Italian government that are in the Fed concerns.

Powell said the central bank stands ready to do what is necessary to support the record-long US economic expansion. He stated, “Based on our assessment of the implications of these developments, we will act as appropriate to sustain the expansion. It will at times be appropriate for us to tilt policy one way or the other because of prominent risks.”

Still, Powell gave no clear indication of whether the Fed plans to step up the pace of interest rate cuts amid growing concern about a possible economic slowdown, drawing an immediate rebuke from Trump.

He revealed, for the Fed, those challenges flow from our mandate to foster maximum employment and price stability. From this perspective, our economy is now in a favorable place, and I will describe how we are working to sustain these conditions in the face of significant risks we have been monitoring.

Based on the policymakers views, US’ unemployment rate has fallen steadily throughout the expansion and has been near half-century lows since early 2018. But that rate alone does not fully capture the benefits of this historically strong job market.

Labor force participation by people in their prime working years has been rising. While unemployment for minorities generally remains higher than for the workforce as a whole, the rate for African Americans, at 6 percent, is the lowest since the government began tracking it in 1972.

For the past few years, wages have been increasing the most for people at the lower end of the wage scale. People who live and work in low- and middle-income communities tell us that this job market is the best anyone can recall.

“We increasingly hear reports that employers are training workers who lack required skills, adapting jobs to the needs of employees with family responsibilities, and offering second chances to people who need one.”

The Fed also seen the inflation has been surprisingly stable during the expansion: not falling much when the economy was weak and not rising much as the expansion gained strength. Inflation ran close to central bank’ prediction for most of last year but has been running somewhat below 2 percent this year.

“Our challenge now is to do what monetary policy can do to sustain the expansion so that the benefits of the strong jobs market extend to more of those still left behind, and so that inflation is centered firmly around 2 percent,” adds by Powell.

Current Policy and the Three Key Questions

According to Powell, a low neutral interest rate presents both near-term and longer-term challenges. Through the Federal Open Meeting Committee (FOMC) setting of the federal funds rate target range and talked about the likely path forward for policy and the economy.

“Risk management enters our decision making because of both the uncertainty about the effects of recent developments and the uncertainty we face regarding structural aspects of the economy, including the natural rate of unemployment and the neutral rate of interest,” said the chairman.

It will at times be appropriate for the Fed to tilt policy one way or the other because of prominent risks. At the end of his speech, he stated that the central bank have much experience in addressing typical macroeconomic developments under this framework.

“The three weeks since our July FOMC meeting have been eventful, beginning with the announcement of new tariffs on imports from China.” explained by Powell.

He continued, financial markets have reacted strongly to this complex, turbulent picture. Equity markets have been volatile. Long-term bond rates around the world have moved down sharply to near post-crisis lows.

He said,” I will conclude by saying that we are deeply committed to fulfilling our mandate in this challenging era, and I look forward to the valuable insights that will, I am confident, be shared at this symposium.”

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