Two Risks

By Isaac Cohen*

In the middle of escalating tariff posturing between the United States and China and consequent volatility in the stock market (9 up or down swings in 11 trading days), the new Chairman of the Federal Reserve Jerome Powell pronounced his inaugural speech, last week at the Economic Club of Chicago.

On the state of the US economy, beyond the strong labor market, Chairman Powell identified “other signs of economic strength,” such as “steady income gains, rising household wealth, and elevated consumer confidence.” He added, “seventeen million jobs have been created in this expansion, and the monthly pace of job growth remains more than sufficient to employ new entrants to the labor force.”

Hours before the speech, the Labor Department announced 103,000 new non agricultural jobs created in March, with the unemployment rate still at 4.1 percent, the lowest since 2000. With the March figure, employment creation has reached 90 consecutive months of sustained expansion, the longest on record.

Chairman Powell characterized the current policy of gradual interest rate increases as a balance between two risks. In his own words, “raising rates too slowly would make it necessary for monetary policy to tighten abruptly down the road, which could jeopardize the economic expansion. But raising rates too quickly would increase the risk that inflation would remain persistently below our 2 percent objective. Our path of gradual rate increases is intended to balance these two risks.”

*International analyst and consultant, former Director ECLAC Washington Commentator on economic and financial issues for CNN en Español TV and radio, UNIVISION, TELEMUNDO and other media.

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