Fed chief says US unemployment could go lower without inflation

WASHINGTON — Federal Reserve Chairman Jerome Powell says that the unemployment rate, already near a 50-year low, could drop further without necessarily igniting higher inflation.

“The data is not sending any signal that the labor market is so hot or that inflation is moving up,” he said in response to a question from Rep. Carolyn Maloney, vice chair of the Joint Economic Committee. “What we have learned … is that the U.S. economy can operate at a much lower level of unemployment than many thought.”

Historically, super-low unemployment has been seen as likely to push up inflation, as workers push for higher pay and companies offer greater salaries to find and keep workers. Powell’s optimism about unemployment and inflation suggest that the Fed is unlikely to feel any need to raise rates anytime soon.

‘Patience script’

Sal Guatieri, a senior economist at BMO Economics, says Powell “stayed true to the patience script” by indicating that that the Fed’s key policy rate is likely to remain unchanged for an extended period unless economic risks increase.

Andrew Hunter, senior U.S. economist at Capital Economics, said Powell’s testimony on Wednesday indicated that a rate cut at the Fed’s next meeting in December was unlikely. Hunter said he believed Fed officials have been encouraged by more hopeful news on the US-China trade talks.

The Fed has cut interest rates three times so far this year.

“Looking ahead, my colleagues and I see a sustained expansion of economic activity, a strong labor market, and inflation near our symmetric 2% objective as most likely,” Powell said in a statement he will deliver to a congressional panel at 11 a.m.

Powell also says the Fed is likely to keep its benchmark short-term interest rate unchanged in the coming months, unless the economy slows enough to cause Fed policymakers to make a “material reassessment” of their outlook.

The Fed signaled after its Oct. 29-30 meeting that it would probably hold off on any further cuts as long as the economy stays healthy and inflation moves closer to the central bank’s target of 2%.

The three cuts, which lowered the interest rate the Fed controls to a range of 1.5% to 1.75%, were intended to offset drags from slower global growth and the U.S.-China trade war.