WASHINGTON -- Federal Reserve Chairman Jerome Powell on Thursday urged Congress to tackle the growing budget deficit but also underscored the current health of the nation's economy.
Powell's testimony before the House Budget Committee came a day after he told Congress' Joint Economic Committee that the Fed was likely to keep rates unchanged in the coming months, unless there were a "material" shift in the economic outlook.
Powell is one of the few leading public figures urging Congress to reduce the federal government's annual deficit, which is nearing $1 trillion.
A large deficit will make it harder for Congress to cut taxes or boost spending when the next recession hits, Powell noted. That is a concern because, with the Fed's benchmark interest rate already low, the Fed also has a limited ability to respond to downturns.
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"It's very important that Congress be able to support the economy because we won't have as much room to cut," he said.
Powell's remarks came two weeks after the Fed cut its short-term rate to a range of 1.5% to 1.75%, its third cut this year. The Fed took those steps to offset slowing global growth and the drag created by the U.S.-China trade war. Both have caused businesses to cut back on investment spending and have driven down factory output. Historically, the Fed has cut its rate by about 5 percentage points in recessions.
Still, Powell also emphasized his view that the economy is likely to keep growing, with little sign of a bubble in stocks or other assets that could later burst.
"Our forecast is, and our expectation very much is, one of continued moderate growth," Powell told the House Budget Committee in Washington on Thursday. "The U.S. economy is the star economy these days," he said.
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"There is no reason to believe that the probability of a recession is elevated at this time," Powell said. "We don't see the warning signs that appeared in other cycles, yet." The downturn in manufacturing is being offset by strong consumer spending, he added.
Some Democratic members of the committee defended Powell from attacks leveled by President Donald Trump, who criticized the Fed on Tuesday in a speech for not cutting rates further. Trump has also called Fed officials "boneheads" and questioned whether Powell or China's President Xi Jinping is a bigger enemy.
"The president's repeated attacks on this institution are unacceptable and dangerous," said Rep. John Yarmuth, D-Ky., chairman of the House Budget Committee.
Rep. Dan Kildee, D-Mich., said Trump's attacks reflected a "deranged view." Previous presidents have publicly acknowledged the Fed's independence, but many have pressured Fed officials privately.
Under questioning about the budget deficit, Powell acknowledged that the federal government still had some room to boost the economy through tax cuts or more spending, should a downturn arrive.
U.S. Rep. Steve Womack, the ranking Republican on the committee, was pleased with Powell's assessment of the economy and gave him high marks for his leadership.
"Overall I think the chairman has given a pretty healthy outlook for the economy and certainly has been able to put a little bit of cold water on this notion that some recession is near. So I think it's been healthy," the lawmaker from Rogers said. "I have a lot of respect for Jay Powell. I think he's doing a very good job."
Information for this article was contributed by Frank E. Lockwood of the Arkansas Democrat-Gazette; by Christopher Rugaber of The Associated Press; and by Craig Torres, William Edwards and Steve Matthews of Bloomberg News.
Business on 11/15/2019
CORRECTION: Rep. John Yarmuth's name was misspelled in an earlier version of this story.