U.S. expansion is sustainable: Fed's Powell

Federal Reserve chairman Jerome Powell on Tuesday flagged openness to further rate cuts to fend off global economic risks, repeating that the central bank will act “as appropriate” amid an economy that he said is likely to continue to expand.

“This feels very sustainable,” Powell said in Denver at the annual meeting of the National Association of Business Economics.

“Clearly things are slowing a bit,” he said, noting that it’s normal for long expansions to have such periods. Twice in the 1990s, he said, the economy similarly downshifted, only to gain steam once the Fed cut interest rates a few times.

The Fed two interest rates this year, in July and September, were made in that spirit and have helped maintain a “favorable” outlook for jobs and inflation, Powell said. The U.S. economy “may just be gathering itself - there’s no reason why the expansion can’t continue,” he added.

Powell noted recent data revisions showed less job growth in the year to March than previously estimated, turning a “booming” market into one of moderate growth.

Other recent economic data, including a possible contraction in manufacturing, add to the sense of reduced momentum.

“It seems that Powell is trying to, in a soft way, demonstrate to the market that the Fed continues to be aware of the downside risks and is actively willing to support the economic expansion as needed,” said Jason Ware, chief investment officer at Albion Financial Group in Salt Lake City, Utah.

Powell also used his speech to let markets know the central bank would soon begin allowing its balance sheet to expand to ensure smoother functioning of U.S. short-term funding markets.

The article was originally published by Reuters. It can be read here.