'We're doing the best of anybody': Powell delivers sunny economic outlook to Congress
Federal Reserve Chair Jerome Powell sounded sunny about the outlook for the U.S. economy during two days of testimony on Capitol Hill, during which the risk of recession was barely mentioned and fears of an economic downturn had all but evaporated.
“The economy is growing at a healthy, sustainable, solid, strong pace,” Powell said during a Thursday hearing of the Senate Banking Committee, where he noted that the U.S. is in better shape than any other major economy in the world.
“We’re doing the best of anybody. We’ve got the strongest growth and the lowest inflation of the advanced economies,” he said.
The economic data is backing up Powell’s optimism. Inflation, the target of the Fed’s rapid interest rate tightening cycle over the past two years, has fallen to a 2.4-percent annual rate, as measured by the personal consumption expenditures (PCE) price index.
Unemployment is near historical lows at 3.7 percent, with the economy adding an average of 239,000 jobs a month since last summer. Gross domestic product (GDP) is projected to rise by 2.5 percent in the first quarter, after popping by 3.2 percent in the fourth quarter of last year and 4.9 percent in the third.
Companies have been raking in the dough, with corporate profits popping 3.4 percent in the third quarter, according to Commerce Department data. Profits are still way above their pre-pandemic levels, rising above $3 trillion in the third quarter for only the second time on record. During the decade before the pandemic, profits hovered around $2 trillion per quarter in seasonally-adjusted terms.
Lawmakers in both parties seconded Powell’s outlook, going so far as to describe the economic conditions, which many expected to turn sour by this point, in miraculous terms.
“You hear a lot of people talk about the American economic miracle,” Sen. J.D. Vance (R-Ohio) said during the Senate Banking hearing.
“It’s important for people to recognize that these corporations are doing better than ever,” Sen. Chris Van Hollen (D-Md.) said.
After three years of elevated inflation, public opinion on the economy has begun to turn around. A January opinion poll from Pew showed that 26 percent of Americans expect economic conditions will be better in a year, up from just 17 percent in April of last year.
A little more than a quarter of registered voters said in a New York Times/Siena College poll released Saturday that the economy is good or excellent, up 6 points from July.
Consumer sentiment held steady in January, according to a benchmark survey from the University of Michigan, but has seen substantial improvements over the past three months and has been generally trending upward since the middle of 2022.
During the hearings this week, Powell faced criticism from Democrats on housing costs, which are driven upward by the Fed’s rate hikes and are where the bulk of inflation currently remains.
Republicans in both chambers grilled Powell on a proposed set of banking regulations known as Basel III that would increase capital requirements for banks, which are intended to make banks more stable following turmoil last year.
Powell surprised many by saying that the international regulatory framework, which has been in the works for years, may be scaled back or even scrapped and reproposed altogether.
The admission drew harsh criticism from financial firebrand Sen. Elizabeth Warren (D-Mass.).
“Public reporting now says that you are driving efforts inside the Fed to weaken the capital rule. You even told the House Financial Services Committee representatives yesterday that you think it’s ‘very plausible’ that you withdraw the rule,” she said.
Powell described the new rules Thursday as a “longer run thing” and said he expects to make “material and broad changes” to them.
Lawmakers in both chambers also expressed concern about the commercial real estate sector, which is declining in value and threatening defaults to its creditors. Powell acknowledged the problems in the financial sector relating to office space, saying “there will be bank failures," but said that impact would be manageable and contained to smaller banks.