Federal Reserve Board Chairman Jerome Powell said the removal of “accommodative” from the post-Federal Open Market Committee meeting statement doesn’t “represent a change in policy.”
The removal of the term “is a sign the economy is proceeding in line with our expectations,” Powell said at a press conference Wednesday afternoon.
When asked, Powell, said policy is still accommodative as the fed funds rate sits “below neutral” in “every single” Fed participant’s estimates. The term was removed, he said, because the “language has run its useful life” and the participants “don’t want to suggest they know when accommodation stops” and the term is no longer “a major part of its thinking.”
Powell said since the Fed has raised rates gradually, it is better able to determine how the economy is reacting “eliminating lags,” yet not answering the question of when the Fed will know when it’s time to stop raising rates.
Addressing President Trump’s stated opposition to rate hike, Powell dismissed it, saying, “We don’t consider political factors.”
About projections that the fed funds rate will become modestly restrictive over the projection term, he acknowledged some participants see “a modest overshoot of neutral,” but warned since it’s so “far out” in time, “it’s hard to be confident that’s the way it’s going to be.”
Regarding fiscal policy, Powell said, it’s difficult to know what the effects of fiscal policy will be in 2020. He noted the Fed always adjusts monetary policy based on data.
Powell supported the dot plot, saying he believes the markets “find it generally interesting” even if projections are “highly uncertain.”
"There does not seem to be consensus of where terminal rates end up among members,” according to Robert Sierra, director at Fitch ratings. “The prospect of rates reaching neutral levels has opened up a debate over the extent to which officials want to clamp down on the economy by increasing them further."
Some signs Powell suggested would be signs that it’s time to stop raising rates include: job growth slowing; an unexpected sharp rise in wage growth or inflation; and steep tightening in financial conditions.
