Risks are rising that rates will need to stay lower for longer, Fed´s Jerome Powell says

Risks were rising that the US economy might be trapped in a lower growth trajectory which would require that interest rates remain lower for longer tan previously expected, a top Federal Reserve official said.

In an interview granted to the Financial Times before the release of the latest jobs report on 5 August, Fed governor Jerome Powell said that the “probability of an era of weaker growth, lower potential growth, for a longer period of time – that worries me more than it used to.”

When asked whether his preconditions for raising rates could be met by the time of the Fed´s September policy meeting, he said: “In particular, I need to see two really good employment reports. And then it is a conversation. I wouldn´t be pounding the table saying we really need to raise rates.”

It was hard to raise rates when everyone else was cutting and when there was weak demand around the globe.

Powell argued for a “very gradual” path of policy tightening, adding that “with inflation below target, I think we can be patient.”
The US economy was not full of risks “right now”, he said.

However, “the issue is that if you look around the world there are just a lot of risks that could affect us […] the risks to us from the global economy are to the downside.”

Even so, the risk of a period of so-called "secular stagnation" was not his "baseline" forecast.

Hence, for him to support rate rises he would want to see strong growth in employment and demand; inflation heading back towards 2.0%; and an absence of obvious "global risks", the FT reported.

Governor Powell is a voting member of the Federal Open Market Committee.