Trump has called him names such as “bonehead” and accused him of behaving like a “stubborn child” for refusing to slash rates to zero or even below, as the European Central Bank has.
At a community event at the Federal Reserve building near the Lincoln Memorial in Washington on Friday, Powell gave an elementary-level lesson on why a Big Interest Rate Drop might not be the right decision in the current economy.
“You may be asking, “What’s wrong with low inflation and low interest rates?'” Powell said at the three-hour event. “Low can be good, but when inflation – and, consequently, interest rates – are too low, the Fed and other central banks have less room to cut rates to support the economy during downturns.”
Powell spoke in the Board Room where FOMC meetings are conducted. It has a 26-foot ceiling, an enormous marble fireplace, and is lit with a 1,000-pound brass and glass chandelier.
“While not everyone fully shares economic opportunities and the economy faces some risks, overall it is – as I like to say – in a good place,” Powell said, sitting at his usual chair at the head of the meeting table. “Our job is to keep it there as long as possible.”
Powell addressed several dozen community representatives at a Friday afternoon session that was part of the “Fed Listens” series of events that have taken place around the nation this year at the various regional Fed banks.
The Washington session was focused on “Maximum Employment and Price Stability.” Others have focused on the economic cycle, monetary policy, or were just billed as “Community Listening Sessions.”
Powell noted the history of the Fed’s marble-clad building that was dedicated by President Franklin Roosevelt in 1937.
“British and American military leaders conferred here during World War II,” Powell said. “And, through the decades, our Federal Reserve predecessors grappled with financial turmoil and the economy’s ups and downs. So when my colleagues and I take our assigned places around this polished mahogany and granite table, the setting and its history lends a certain formality – dare I say, stuffiness – to the proceedings.”
The FOMC members will next gather around the same table Oct. 29 and 30 to weigh economic data and vote on monetary policy. According to CME’s FedWatch tool, there’s a 75% probability of a 0.25% rate cut at the meeting.
That likely won’t be enough to satisfy Trump, who has previously called for the Fed to cut interest rates below 0%.
At the end of the session, Powell concluded:
“If inflation is too low, rates are going to be even lower, and we’re going to have less power and, over a business cycle, we’ll have even less ability to support maximum employment and stable prices,” Powell said. “Do you think we’ll have a hard time explaining that to the public? Do you have any great ideas on how to do that?”
The room erupted in laughter, with some participants likely thinking of Trump’s public Twitter tirades against Powell.
“I think you’re going to need another three hours,” one of the community leaders said.