Federal Reserve Chairman Jerome Powell reaffirmed his policy outlook for the United States on Tuesday, which implies a slower pace of growth linked to increasing headwinds related to policy and global economic issues. The only major theme of importance with respect to the near term was Powell’s noting of the labor slack still existing in the economy; this points toward a dovish outlook for the Fed on the path of interest rates. RSM’s outlook continues to expect the Fed to hold rates until late 2019, with one possible 25-basis-point increase at the December meeting. That move is dependent upon the evolution of domestic economic data, the direction of trade policy and the abatement of growing global economic challenges.
From a longer-term perspective, Powell did discuss with Senator Pat Toomey (R-PA), a member of the U.S. Senate Committee on Banking, Housing and Urban Affairs, the yearlong assessment by the Fed of its policy framework. In our estimation, this will result in a policy framework that modestly alters the central bank’s framework, which will not be tethered to a hard 2 percent inflation target. Rather, it will result in an inter-temporal average resulting in a bias toward overshooting of the target, lower rates over the duration of cyclical expansions and friendlier credit conditions for small and medium-size enterprises.