Powell Is Willing to Search for More Heat in U.S. Labor MarketBy
Fed Chairman nomineee endorses gradual rate hiking path
Powell says case for December rate hike ‘coming together’
Jerome Powell, appearing before the Senate panel weighing his nomination to be Federal Reserve chairman, aligned himself with a more dovish wing of the U.S. central bank that believes the labor market can get even stronger without creating inflation worries.
President Donald Trump’s nominee said the current jobless rate of 4.1 percent is at or below many estimates of full employment, and then pointed to other measures that suggest remaining slack like historically low participation rates.
“There’s no sense of an overheating economy or a particularly tight labor market,” Powell said in response to a question from Senator Jack Reed, a Rhode Island Democrat. “There may be more slack, more people that can come back to work. I think we are looking at an economy that is going to go under 4 percent unemployment.”
His comments suggest he shares current Fed Chair Janet Yellen’s view that there are still pools of potential workers who can be drawn into the labor force, giving the Fed scope to continue its go-slow approach to raising interest rates.
Powell went on to explain that moderate wage growth, and low rates of labor-force participation, particularly among working-age men, provide additional evidence of pockets of remaining labor supply. At the same time, the economy is strong enough to handle the Fed’s policy of gradual rate hikes, possibly including one next month.
“The case for raising interest rates at our next meeting is coming together,” Powell said under questioning by Senator Dean Heller, a Nevada Republican. “Conditions are supportive of doing that.”
The comments come as Fed officials are preparing for their last meeting of the year Dec. 12-13. Financial markets are pricing in about a 93 percent probability of a rate hike at that meeting. What will be critical is how Powell, if confirmed by the Senate, leads the committee on further rate increases in 2018.
U.S. central bankers are increasingly split on the risks facing policy. The unemployment rate is likely to fall lower still, possibly dipping below 4 percent next year as growth picks up. That’s leading some officials to argue that the fundamentals for higher prices are already in play. At the same time, inflation measures have fallen further below the central bank’s 2 percent target this year, extending a miss for most of the past five years.
“He seems to be more data-dependent” than Yellen, said Omair Sharif, senior U.S. economist at Societe Generale in New York. “He seems to be in the camp that says, ‘I am going to wait for the evidence to suggest that we are moving toward our inflation target.”’
Powell said it is important to achieve the target and said he and other members of the committee have been surprised by the softness in prices this year. “One question is -- is it transitory, or are there more fundamental things at work here?” he told the Senate banking panel. “We will have to be guided by the data as it comes in.”
The benchmark lending rate is currently in a target range of 1 percent to 1.25 percent. A December increase would represent the third tightening of policy this year and only the fifth rate hike since the expansion began in mid-2009.
“He showed himself to be following the model of a successful Fed chair who never says ‘mission accomplished.’ You have to be open-minded about your definition of resource slack,” said Vincent Reinhart, chief economist at Standish Mellon Asset Management LLC in Boston. “You can’t be sure you’ve eliminated slack when you don’t see inflation.”
Powell, 64, repeatedly ducked questions about the economic impact of tax cuts being debated in Congress. He sailed through about two hours of questioning with few signs that his confirmation would fail to pass the committee.
On the regulatory front, Powell told the senators that he wouldn’t call what he has in mind “deregulation,” but instead characterized it as reviewing and re-writing rules established since the 2008 financial crisis to make them more efficient.
Powell told Democratic Senator Elizabeth Warren that regulations are “tough enough.” He expects to be “well aligned” with new Vice Chairman for Supervision Randal Quarles, who is a long-time friend and fellow Treasury Department veteran.
Powell also tried to put another post-crisis legacy to rest, saying he no longer thinks any of the large U.S. banks are “too big to fail” -- as long as the regulators keep their Dodd-Frank Act power to dismantle a collapsing firm without letting it go through bankruptcy. The bankruptcy courts are supposed to be the favored option, but Powell said they may not be able to handle the load in a “very stressful situation.”
Asked if he’s prepared to become the world’s most influential central banker, Powell hesitated briefly before coolly stating, “I feel fine about it.”
— With assistance by Christopher Condon, and Jesse Hamilton