On The Money: Powell defends rate hikes amid criticism, confusion | Trump reportedly offers aid to Italy | Commerce Dept. picks ZTE monitor

On The Money: Powell defends rate hikes amid criticism, confusion | Trump reportedly offers aid to Italy | Commerce Dept. picks ZTE monitor
© Anna Moneymaker

Happy Friday and welcome back to On The Money. I’m Sylvan Lane, and here’s your nightly guide to everything affecting your bills, bank account and bottom line.

See something I missed? Let me know at slane@thehill.com or tweet me @SylvanLane. And if you like your newsletter, you can subscribe to it here: http://bit.ly/1NxxW2N.

Write us with tips, suggestions and news: slane@thehill.com, vneedham@thehill.com, njagoda@thehill.com and nelis@thehill.com. Follow us on Twitter: @SylvanLane,  @VickofTheHill, @NJagoda and @NivElis.

THE BIG DEAL — Powell defends rate hikes amid criticism and confusion: Federal Reserve Chairman Jerome Powell on Friday defended the central bank’s plans to gradually hike interest rates, citing the strength of the U.S. economy and new uncertainty about how it operates.

Powell said the Fed would continue to raise interest rates as the economy expands and unemployment lingers at near-record lows, resisting calls to maintain easy money policies while inflation remains stable.

The chairman said bringing interest rates back toward levels the the Fed sees as neutral is the safest approach to managing an economy that has raised questions about the central bank’s diagnostic tools for shaping monetary policy.

“If the strong growth in income and jobs continues, further gradual increases in the target range for the federal funds rate will likely be appropriate,” Powell said in a speech at the Fed summit in Jackson Hole, Wyo. I’ve got more from his speech here.

The background:

  • Fed officials have debated over the pace at which they should normalize interest rates after slashing them to near-zero levels during the 2008 crisis. The bank has raised rates seven times since 2015, twice this year, and is expected to do so again in September and December.

  • The U.S. economy has grown at a great pace and boasts a tight labor market, which typically prompts the Fed to pull back stimulus. Hawkish members of the Fed board have expressed fears that moving too slowly could risk rampant inflation, but more liberal officials see no need slow down the economy while prices stay mostly stable.

  • The Fed’s efforts to strike that balance have been complicated by a new challenge to the long-assumed relationship between unemployment and inflation. Low unemployment has long been thought to increase the pace of price growth because of greater economic activity.

 

Powell’s argument:

  • Economists have been puzzled by the lack of corresponding wage and price growth to the tight labor market. Fed officials have been forced to question the location of its “guiding stars” of economic policy, said Powell: the assumed levels for the natural rate of unemployment, neutral interest rate and stable inflation.

  • Powell said the uncertainty about how low unemployment could go without triggering rampant inflation called for an approach focused on risk-management. He argued that gradual interest rate hikes would do less potential harm to the economy than basing policy on changing assumptions about the relationship between inflation and unemployment.

LEADING THE DAY

Retailers study shows more Trump tariffs could cost consumers $6 billion: Trump’s threat to slap another $200 billion in tariffs on Chinese good could push up prices and cost U.S. consumers $6 billion, according to a new study by the National Retail Federation released Thursday.

The NRF study focuses on tariffs that will hit furniture and travel goods from China, arguing that even the threat of billions more in tariffs is causing retailers to raise prices and seek out other suppliers.

Retailers are urging the Office of the U.S. Trade Representative to reject Trump's plan to impose another $200 billion in tariffs on Chinese imports, which businesses have been testifying about all week in Washington.

“By now the administration should know something it questioned several months ago: Tariffs will not get China to change its unfair trade practices,” said Jonathan Gold, NRF's vice president for supply chain and customs policy during testimony prepared for a USTR hearing on Thursday.  

The Hill’s Vicki Needham breaks it down here.

Trump offered U.S. assistance to fund Italy’s public debt: report: President TrumpDonald John TrumpTrump: Dems playing destructive 'con game' with Kavanaugh Several Yale Law classmates who backed Kavanaugh call for misconduct investigation Freedom Caucus calls on Rosenstein to testify or resign MORE offered to assist Italy's prime minister in funding the country's public debt by having the U.S. buy Italian sovereign bonds, according to a news report.

An Italian newspaper reports that Trump made the offer during a meeting with Italian Prime Minister Giuseppe Conte in Washington earlier this year, though it was unclear exactly how the U.S. would purchase the bonds, according to CNBC.

Financial analyst Christopher Wood told the Italian newspaper Corriere della Sera that Trump's goal in offering to finance Italy's debt, which, CNBC reports, investors are fleeing as it surpasses 130 percent of the country's GDP, is to foment divisions between Italy and the European Union.

"Trump could not have made it more clear that he supports the cause of those in Italy who want to leave the euro," Wood said.

 

NEXT WEEK’S NEWS, NOW

  • The House is still out, but the Senate will be back to work on government funding legislation and is on track to confirm Richard Clarida as Fed vice chairman by the end of the week.
  • We’ll be on the lookout for progress in NAFTA talks after the White House touted an imminent deal with Mexico, though it’s unclear when and if that will surface.

 

GOOD TO KNOW

  • Allen Weisselberg, the longtime chief financial officer of the Trump Organization, has been granted immunity by federal prosecutors working on the criminal investigation into Michael Cohen, The Wall Street Journal reported Friday.

 

ODDS AND ENDS

 

Recap the week with On The Money: