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Fed Chair Powell Sees 'Remarkably Positive Set of Economic Circumstances'--Update

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10/03/2018 | 05:49pm EDT

By Kate Davidson and Sarah Chaney

WASHINGTON -- The U.S. economy is experiencing "a remarkably positive set of economic circumstances," Federal Reserve Chairman Jerome Powell said Wednesday, suggesting that he sees little risk the current economic expansion will be knocked off course.

"There's no reason to think this cycle can't continue for quite some time, effectively indefinitely," Mr. Powell said in a moderated discussion with PBS News Hour's Judy Woodruff, at the Atlantic Festival in Washington.

Mr. Powell's comments echoed remarks he made Tuesday, where he said he doesn't see evidence the labor market is at risk of overheating or of price pressures accelerating. He also pushed back Tuesday against criticism that Fed officials are underestimating the prospect of inflation overshooting the central bank's 2% goal.

Mr. Powell said he continues to believe inflation will rise as unemployment continues to fall, a framework known as the Phillips curve. But he acknowledged that so far, wage increases haven't promoted price inflation, and said "it's a bit of a mystery" why the tight labor market hasn't led to stronger wage gains.

"I wouldn't say it's dead," he said of the Phillips curve. "It might be resting. We can't say that's it gone away."

Mr. Powell said a range of indicators such as job creation, labor-force participation and the unemployment rate signal the labor market is moving close to full employment.

The Fed raised its benchmark federal-funds rate last week to a range between 2% and 2.25%. Officials offered projections after their two-day meeting last week penciling in one more rate increase this year, and three increases in 2019.

Fed officials foresee a jobless rate below 4% over the next three years, but don't expect inflation will rise much above 2%.

Mr. Powell also said he believes the U.S. economy is "a long way from neutral" -- referring to the point at which interest rates are neither spurring nor slowing economy growth. It is an important focus for Fed officials, some of whom have argued the central bank should stop raising interest rates once they reach that neutral point. But Mr. Powell has played down the ability to precisely estimate where the neutral rate lies, and argued policymakers should treat it as one of many factors guiding interest-rate policy.

President Trump this summer criticized the Fed's interest-rate increases on Twitter and in an interview with CNBC. He also told donors at a fundraiser he was unhappy about the moves and raised doubts about Mr. Powell, his choice to lead the Fed, according to people in attendance.

"Tightening now hurts all that we have done," Mr. Trump tweeted July 20, warning higher rates could hinder U.S. economic growth.

Mr. Powell said Wednesday the Fed makes its decisions based on what is best for the economy, not political considerations.

"My focus is on controlling the controllable, and we control what we do at the Fed," he said, when asked about the president's tweet. He said he did not speak with Mr. Trump after the tweet.

Write to Kate Davidson at kate.davidson@wsj.com and Sarah Chaney at sarah.chaney@wsj.com

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