The US economy is in a "favorable place" and the Federal Reserve will "act as appropriate" to keep the current economic expansion on track, Fed chair Jerome Powell said on Friday in remarks that gave few clues about whether the central bank will cut interest rates at its next meeting or not.
The chair, under pressure from President Donald Trump to cut rates soon and deeply, listed a series of economic and geopolitical risks that the Fed is monitoring - many of them, Powell noted, linked to the administration's trade war with China and other countries.
But "the U.S. economy has continued to perform well overall," Powell said in keynote remarks at an annual Fed economic symposium at this mountain retreat. "Business investment and manufacturing have weakened, but solid job growth and rising wages have been driving robust consumption and supporting moderate overall growth."
If the trade wars have disrupted business investment and confidence and contributed to "deteriorating" global growth, Powell said the Fed could not set all that right through monetary policy.
There are "no recent precedents to guide any policy response to the current situation," Powell said, adding that monetary policy "cannot provide a settled rulebook for international trade."
Between that, the possibility of a hard "Brexit," tension in Hong Kong, an economic slowdown in places like Germany and other overseas troubles, Powell said the Fed needed to "look through" short-term turbulence and focus on how the United States is performing.
Powell did note that rate cuts in the 1990s helped keep an expansion intact.
But the overall tone of his statement may disappoint investors expecting the Fed to cut rates at its September meeting and possibly several more times this year. The central bank reduced its benchmark rate by a quarter percentage point in July in what Powell referred to as a mid-cycle adjustment.
The initial response in markets was muted, with bond yields edging lower and U.S. stocks briefly paring some of the drop triggered earlier by China's announcement of retaliatory tariffs on U.S. goods.
It is also likely to disappoint Trump, both in focusing on the impact that trade uncertainty is having on the global economy, and in not giving a clear signal that more cuts are coming.
The Fed must "look through what may be passing events, focus on how trade developments are affecting the outlook, and adjust policy to promote our objectives" of 2% inflation and strong employment.
DIVIDED FED, ANGRY TRUMP
No matter what course Powell chooses, it is clear from the minutes of the Fed's most recent meeting released Wednesday and from the range of comments from policymakers also in attendance here that he lacks a broad consensus among his colleagues about the appropriate course of action.
Earlier on Friday, St. Louis Federal Reserve Bank President James Bullard said the policy-setting Federal Open Market Committee would have a "robust debate" about cutting U.S. interest rates by a half percentage point at their next policy meeting in September.
"I think there will be a robust debate about 50," he said in an interview with Bloomberg TV. "I think it's creeping onto the table."
Bullard, who has long advocated for lower rates to address the persistent shortfall in inflation, said he is troubled by signs of a slowdown coming from the bond market - a so-called "inversion" of the Treasury yield curve that has stood as a reliable precursor to U.S. recessions.
He is "not interested" in testing the theory "that this time is different" with regard to interpreting the bond market's signal, Bullard said.
Meanwhile, Cleveland Federal Reserve PresidentLoretta Mester, who did not support the Fed's rate cut lastmonth, said she is not yet convinced of the need to cut rates further.
"At this point, if the economy continues where it is, Iwould probably say we should keep things the way they are,"Mester told CNBC. "But, I am very attuned to the downside risks to this economy and I want to make sure we're always focused on our dual-mandate goals."
The Bullard-Mester divide is emblematic of the wide range of opinion inside the FOMC, which voted 8-2 to cut rates on July 31 for the first time in a decade. That tally did not fully capture the disapproval of the move by those without a vote at the meeting, including Mester.
And, of course, there is Trump. He has been unrelenting in his demands that the Fed cut rates, in part to help take some of the wind out of a strong U.S. dollar that he sees hurting U.S. exports.
The president again took to Twitter on Friday as Powell was set to speak. "Now the Fed can show their stuff," he said.