Federal Reserve Chairman Jerome Powell gave an upbeat outlook on the US economy during a discussion at the Foreign Bankers Association’s annual general meeting in Amsterdam.
Powell highlighted the strong performance of the U.S. economy, noting a particularly strong labor market and strong household finances.
Powell said consumer spending and business investment held steady despite ongoing labor shortages across industries. He stressed that overall, US economic data paints a positive picture.
The labor market is also showing signs of returning to better balance and is currently as tight as it was before the pandemic, with signs of gradually cooling as supply and demand begin to align more closely.
Inflation, however, was a concern for Powell in the first quarter as it showed little sign of progress.
“Inflation in the first quarter was characterized by a lack of further progress,” Powell said.
“We didn’t expect a smooth path to tackling inflation, we need to be patient and let politics do its thing.”
“Confidence that inflation will fall again is lower than it was. My confidence in this is not as high as it used to be.”
Despite inflation concerns, the Fed chairman forecast continued GDP growth of 2% or above and expects the labor market to remain strong as it rebalances.
Powell: Fed policy is working
Powell also stated that the relevance of the neutral rate for current policy is limited and that the ongoing debate is not focused on the level of the neutral rate itself.
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He acknowledged that achieving confidence in lower inflation is proving to be a longer process than initially expected. He noted a significant cooling in demand for labor, which may indicate changes in the labor market.
Moreover, Powell observed that people who had invested in low-rate mortgages were now less likely to move, suggesting a potential impact on housing market mobility.
As for the effectiveness of current policies, Powell noted that they are generally working and are having an impact on spending.
He noted that credit has been tightened for some time, which could affect borrowing and spending behavior.
Surveys show that people currently believe that now is not the best time to buy durable goods, reflecting consumer sentiment in the economic environment.