Powell expects 'sustained expansion' of US economy

The US economy is likely to continue to grow but faces continued risks from the global slowdown and trade disputes, which have already dampened the expansion, Federal Reserve chief Jerome Powell said Wednesday.

In the first of back-to-back days of testimony before Congress, Powell reaffirmed that the central bank is on hold after cutting the benchmark lending rate three times this year.

That message will not be welcomed by President Donald Trump, who has accused the Fed chief of incompetence and of undermining his efforts to supercharge the US economy. Trump on Tuesday again accused the Fed of raising rates too quickly and cutting too slowly, even indicating he would like to see the kind of negative interest rates used in Europe and Japan, where economic growth has been persistently sluggish.

Powell consistently declines to respond to Trump's criticisms but in a veiled aside to start his prepared testimony he said the Fed has been granted independence to conduct monetary policy "based on facts and objective analysis."

The Fed raised the key borrowing rate four times in 2018, as the economy seemed to be gaining speed, but reversed course this year as Trump's trade conflicts especially with China dragged on and began to impact the real economy.

Powell said the rate cuts were designed to support continued growth "and to provide some insurance against ongoing risks."

After providing that stimulus, Powell said, "my colleagues and I see a sustained expansion of economic activity, a strong labor market, and inflation near our symmetric two percent objective as most likely."

But Powell repeated the message he delivered after the third rate cut in late September, saying policymakers will hold off on any further moves while they assess the impact of the rate cuts on the economy, as well as any new developments.

"We see the current stance of monetary policy as likely to remain appropriate as long as incoming information about the economy remains broadly consistent with our outlook," he said.

However, in his testimony to the Joint Economic Committee, Powell warned that "sluggish growth abroad and trade developments have weighed on the economy and pose ongoing risks."

US GDP growth slowed to 1.9 percent in the third quarter from 2.5 percent in the previous three months and while that was partly due to a 40 day strike at General Motors, trade conflicts also have weakened business investment and "weighed on exports and manufacturing this year," he said.

If anything changes or new developments impact the economic outlook, "we would respond accordingly."

The Fed chief again highlighted the limits of monetary policy, and said should the American economy face another downturn "it would also be important for fiscal policy to support the economy."

But he flagged concerns about an "unsustainable" government budget and "high and rising debt," which could limit policymakers' ability to boost spending as needed in a slowdown.