Despite cautious stance, Fed’s Powell suggests continuing policy normalization

Jerome Powell, Chairman of the Federal Reserve Board of Governors, said on Wednesday that he feels comfortable with the current stance of monetary policy and where it currently is, stressing that the US economy has been performing very well recently.

Powell added: “The institutional relationship between the Fed and the US Treasury will remain as it is under the new administration,” stressing that a large part of the central bank’s independence is that it is self-financing, mentioning that the central bank is determined to keep out from politics.

“The economy looks good, and there is nothing that limits our ability to continue,” Powell continued, adding that the current round of quantitative easing that the US central bank began last September by cutting interest rates by 50 basis points.

Powell also stressed that economic growth has been higher than markets expected recently and that inflation has been “a little higher” than expected.

Key Quotes:

Independence lets the Fed make decisions for all Americans, not any political party.

There is broad support in both parties for an independent Fed; do not think there is risk of losing it.

The U.S. economy is in remarkably good shape.

Feel very good about where monetary policy is.

Do not think appointment of a “shadow” Fed chair is on the table.

Feel the same institutional relationships between the Fed and the Treasury will continue under the new administration.

Confident of having the same type of relationship with Bessent as with other Treasury Secretaries.

Trump said the same things privately in his first administration as he did publicly.

Asked about the influence of the new Doge program on the central banks, says part of the Fed’s independence is that it is self-funded.

Fed tries to be good stewards of the public’s money.

The trend towards central bank transparency has been constructive for making policy.

Unemployment is still very low and making progress on inflation.

The economy is in good shape and there is no reason it can’t continue.

On a path to more neutral rates over time, though downside risks are less than thought, Fed can afford to be cautious in finding neutral.

Fed is trying to be in a middle place where policy is less restrictive so inflation can fall, but not damage the labor market.

Lower survey response levels are likely increasing volatility in estimates of labor market data.