Fed chief sees 'conflicting signals' from economy

Fed chief sees 'conflicting signals' from economy
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Federal Reserve Chairman Jerome Powell said Tuesday that the central bank is trying to make sense of "conflicting signals" worldwide that could hint at threats to the U.S. economy.

Powell said in testimony before the Senate Banking Committee that the Fed is trying to reconcile the persistent strength of the U.S. economy with growing signs of a global slowdown.

“While we view current economic conditions as healthy and the economic outlook as favorable, over the past few months we have seen some crosscurrents and conflicting signals,” Powell said.

“We will carefully monitor these issues as they evolve.”

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Powell's testimony was his first before Congress since July of last year and comes after a turbulent stretch for the Fed chief. Powell found himself under attack from President TrumpDonald John TrumpRepublicans consider skipping witnesses in Trump impeachment trial Bombshell Afghanistan report bolsters calls for end to 'forever wars' Lawmakers dismiss Chinese retaliatory threat to US tech MORE over a series of rate hikes through 2018.

Powell throughout insisted that politics would not influence the central bank's policies as he faced the tough task of dealing with confusing economic signals and a stock market downturn late last year.

The bank in January indicated it would indefinitely pause further rate hikes, a development that was hailed by Trump.

Powell did face questions Sen. Brian SchatzBrian Emanuel SchatzThere's a lot to like about the Senate privacy bill, if it's not watered down Advocates hopeful dueling privacy bills can bridge partisan divide Key Senate Democrats unveil sweeping online privacy bill MORE (D-Hawaii) about the extent of Trump’s attempts to influence the Fed.

Schatz asked Powell if the White House had ever communicated with him about interest rates, which the chairman has denied before. But Powell declined to answer the question, saying he’d prefer to keep private his conversations with other officials.

Powell and Fed Vice Chairman Richard Clarida dined with Trump and Treasury Secretary Steven MnuchinSteven Terner MnuchinLawmakers push spending deadline to Thursday The Hill's 12:30 Report — Presented by UANI — House Dems charge Trump with abuse, obstruction of Congress in impeachment articles White House, Democrats edge closer to deal on trade MORE at the White House on Feb. 4, five days after the bank declined to raise rates at its January meeting. Powell said at the time that the Fed would be “patiently awaiting greater clarity” before hiking rates again.

Senators at Tuesday's hearing were largely complementary of Powell's efforts leading the bank but he did face some pointed questions on regulatory issues from both sides of the aisle.

Some Republicans pushed Powell to expand the Fed’s implementation of a bill to loosen up oversight of banks, which Trump signed last year.

“If the end result of [the bill] is as modest as this appears to be, we’ve not achieved our goal. That can’t be the congressional intent,” said Sen. Jerry MoranGerald (Jerry) MoranMcConnell, Grassley at odds over Trump-backed drug bill Senators inch forward on federal privacy bill Hillicon Valley: Dueling bills set stage for privacy debate | Google co-founders step down from parent company | Advocates rally for self-driving car bill | Elon Musk defamation trial begins | Lawsuit accuses TikTok of sharing data with China MORE (R-Kan.).

Democrats, though, worried that the Fed under Powell is easing its oversight of financial institutions.

Sen. Elizabeth WarrenElizabeth Ann WarrenTrump trade deal likely to sow division in Democratic presidential field Buttigieg says he doubts consulting work for insurer led to layoffs Trump supporters at Pa. rally 'upset' after Democrats introduce impeachment articles MORE (D-Mass.), a 2020 contender, bashed the Fed’s track record of approving bank mergers, urging Powell to be skeptical of the recently announced marriage of SunTrust and BB&T banks.

“The Fed works for big rich banks that want to get bigger and want to get richer, and then everyone else pays the price,” Warren said.

Lawmakers largely zeroed in on the state of the U.S. labor force and other economic concerns in their questions for Powell.

Powell said the Fed projects U.S. GDP grew by just under 3 percent in 2018, which he called "a strong pace" led by jumps in consumer spending and business investment.

U.S unemployment and GDP growth have remained strong, but China and Europe are both experiencing economic slowdowns, Powell said. He also cited financial market volatility, the high costs of global trade tensions and the tumultuous Brexit process.

The Fed hinted it would yield to those red flags in January. The bank announced it would be “patient” with further rate hikes while inflation remained low. The Fed had hiked rates four times in 2018 and three times in 2017 as the economy accelerated and prices ticked gradually higher.

Inflation has since stayed slightly below the Fed’s target of 2 percent. Top bank officials, even some who prefer higher rates, have said they’re willing to hold off on hikes without further inflation with economic storm clouds on the horizon.

Powell said that with low inflation and steady, low unemployment, the Fed could afford to let the labor market run hot. The chairman said that the economy appears able to absorb more workers without spurring rampant price increases.

“We learned there’s more slack in the labor market because people are staying,” Powell said. “There’s more room to grow and that has implications for monetary policy.”

Updated at 4:56 p.m.