US Central Bank President Jerome Powell appeared serene Tuesday on the economic front saying that the employment and inflation situation was "positive" in the United States and that recent rate cuts were helping economic conditions.
In a speech Tuesday in Denver, Colorado, three weeks before a next monetary meeting, the head of the Fed reiterated that monetary policy "was not determined in advance" but that the Central Bank "would monitor economic data and the risks to the US economy.
After two modest rate cuts in July and September, a large majority of financial players are still banking on a further decline of a quarter of a percentage point (0.25%) in overnight rates at the next meeting. monetary policy of 30 October.
But Mr Powell preferred to remain cautious just saying: "the next meeting is in a few weeks, by then we will closely monitor the economic information".
"We will be dependent on the data, evaluating the outlook and risks, one monetary meeting after another," he said without commitment.
He appeared more optimistic about the evolution of inflation whose apathy has so far been one of the reasons for lowering rates.
"Inflation is a little below our symmetrical target of 2% but it has gradually strengthened in recent months," he said. The PCE price index in August was only 1.4% year-on-year, but excluding traditionally volatile energy and food prices, so-called underlying inflation has risen at 1.8%.
Mr. Powell emphasized that Fed members continue to predict "a sustainable expansion of economic activity, a dynamic labor market and inflation close to the goal".
"Many forecasters outside the Fed agree," he said, adding a counterpoint to widespread sentiment, especially in the manufacturing sector, that a recession is approaching.
Even though there are fewer hires, the Fed boss added during a question-and-answer session following his speech, "there is no reason for the expansion not to continue," he said. assured.
The risks to the economy lie mainly in the "international environment," Powell said. "Growth has weakened in the rest of the world in the past year and a half, uncertainties around trade and Brexit are all risks for the economic outlook," he added.
Rebuilding the balance sheet
Referring to the pressure on short-term interbank market rates (repo), Powell said the Fed was considering buying short-term treasury bills to boost its reserves.
However, these asset purchases have nothing to do with the ultra-accommodative policy pursued after the financial crisis when the Fed had massively bought Treasury bills, Powell assured.
He explained that the interbank refinancing market had suffered "unexpectedly high volatility", explained by the coincidence of important tax deadlines for companies and the massive issuance of Treasury bonds causing "liquidity tensions in the money markets". ".
To ease these tensions, the Fed has been injecting liquidity daily since the end of September in order to maintain the repo rate in the target range (1.75% to 2%) set by the European Commission. Fed.
The central bank will also inflate its balance sheet by buying treasury bills with terms of less than one year which should however "not have any effect on monetary policy," he said. "It's not a new QE (Quantitative Easing)," he said.
Asked about his readings when he was spotted several times with a book by Paul Volcker, his illustrious predecessor at the head of the Fed between 1979 and 1987, Mr. Powell paid a vibrant tribute to this legend of finance, today who is 92 years old.
"I do not think there has been a greater servant of the state in our field in our lifetime," said Powell, recalling that Paul Volcker was mistreated and booed for his rate hikes. in times of high inflation.
Volcker had had to show independence from the discontented power of his monetary policy, a situation that is reminiscent of Jerome Powell's stance against Donald Trump's insulting zero rates.