UPDATED 10:56 AM PT — Thurs. Nov. 29, 2018
Federal Reserve Chairman Jerome Powell is softening his stance on interest rate hikes after repeated criticisms from President Trump.
While speaking at the economic club of New York Wednesday, Powell said higher interest rates are necessary to stave off risks to the U.S economy.
“My own assessment is that, while risks are above normal in some areas and below normal in others, overall financial stability vulnerabilities are at a moderate level,” he stated.
However, some Trump administration officials are focusing on how the central bank could help reduce America’s national debt. Following 10-years of ultra low fed interest rates, U.S. household debt has increased to $13.3 trillion, while the national debt surpassed $20 trillion.
Some officials believe the Federal Reserve could halt and reverse this accumulation of debt.
“Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy — that is, neither speeding up nor slowing down growth,” stated Chairman Powell.
Treasury Secretary Steven Mnuchin has reportedly inquired if Powell could decrease the Fed’s holdings of U.S. federal bonds instead of hiking rates. This could alleviate President Trump’s concerns with both the Fed policies and national debt.
“I’m not uncomfortable with where debt-to-GDP is now, but that’s something we’ll keep an eye on, and again, it’s something we will review and carefully look at,” said Mnuchin.
Powell’s remarks suggested interest rates could go up just once next year compared to three hikes this year. There is speculation Powell could have listened to Mnuchin’s suggestions and could ramp-up the reductions of the central bank’s holdings of U.S. debt currently at just above four trillion dollars.
Meanwhile, Powell also reiterated the U..S economy is doing quite well.
“The unemployment rate is 3.7-percent, a 49-year low, and many other measures of labor market strength are at or near historic bests,” he explained. “Inflation is near our two-percent target, and the economy is growing at an annual rate of about three-percent, well above most estimates of its longer-run trend.”
The Fed chair’s remarks might also suggest, now that the U.S. economy is doing better, the U.S. debt-to-GDP ratio could gradually decrease, falling in line with President Trump’s agenda.