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Powell Says Fed Will Sustain Expansion, Reinforcing Rate-Cut Bet

Catherine Bosley and Jan Dahinten

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Federal Reserve Chairman Jerome Powell said the most likely outlook for the U.S. and world economy is continued moderate growth. His comments cemented expectations for another quarter-percentage-point cut in interest rates later this month.

“Our main expectation is not at all that there will be a recession,” either in the U.S. or the global economy, Powell said Friday in Zurich during a question-and-answer session in which he was joined by Swiss National Bank President Thomas Jordan.

The Fed chief noted that the central bank is monitoring "significant risks," including global trade tensions, that could threaten this scenario. “We’re going to continue to watch all of these factors, and all the geopolitical things that are happening,” he said. “We’re going to continue to act as appropriate to sustain this expansion.”

Powell’s remarks reinforced investors’ expectations for a quarter percentage-point cut when U.S. central bankers gather in Washington Sept. 17-18. They were also the last public words on policy from the Fed until the gathering: officials enter their pre-meeting blackout at midnight.

Powell could have signaled he was open to a more dovish half-point rate cut, which some policy makers have sought -- and which President Donald Trump has loudly been calling for on Twitter. But he did not.

“The U.S. economy has continued to perform well,” he said. “The most likely outlook for our economy remains a favorable one, with moderate growth, a strong labor market, and inflation moving back up close to our 2% goal.”

U.S. stocks extended gains and Treasuries were mixed after Powell spoke, with the S&P 500 advancing to session highs. The dollar fell.

Rate-cut expectations were also reinforced earlier Friday when the U.S. Labor Department reported employers added 130,000 new jobs in August, undershooting economists’ estimates.

Powell said the labor market was in quite a strong position and described the latest data as “consistent” with that picture.

For months, Powell and his Fed colleagues have warned that trade tensions and slower global growth represent mounting risks to the U.S. economy. To guard against those risks and to boost below-target inflation, the Fed cut rates by a quarter point in July in what Powell called a “mid-cycle adjustment” and “not the beginning of a long series of rate cuts.”

In recent weeks, however, manufacturing data has suggested that ongoing trade disputes are causing not only uncertainty, but real damage to the U.S. economy.

“There are significant risks and we’ve been monitoring those,” Powell said.

Powell was also asked about a Bloomberg Opinion column published last week by former New York Fed chief Bill Dudley, which suggested that the Fed reject interest-rate cuts that would shield the economy from Trump’s trade policies, and help his prospects for re-election in 2020.

“We serve all Americans regardless of their political party,” Powell said. “The idea that we would deviate from that is just simply wrong.”

The chairman was asked about Facebook Inc.’s Libra crypto-currency plans. Powell said it could quickly become systemically important because of the huge scale of the social-media giant’s network. As a result, it would have to be “held to the highest” regulatory and supervisory standards.

“It is not obvious to see how that would happen under our current regulatory system,” he said.

(Updates with crypto-currency comments in final paragraph.)

--With assistance from Christopher Condon, Fergal O'Brien, Reade Pickert and Scott Lanman.

To contact the reporters on this story: Catherine Bosley in Zurich at cbosley1@bloomberg.net;Jan Dahinten in Zurich at jdahinten@bloomberg.net

To contact the editors responsible for this story: Margaret Collins at mcollins45@bloomberg.net, Alister Bull, Ben Holland

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