Federal Reserve Chairman Jerome Powell stuck to his guns at an appearance in Chicago Friday, suggesting that the outlook for inflation and the U.S. labor market are supportive of the Fed's strategy of gradual interest rate hikes over time.
"We will continue to aim for 2% inflation and for a sustained economic expansion with a strong labor market," Powell said in offering his take on the state of the U.S. economy at an event at the Economic Club of Chicago on Friday. "As long as the economy continues broadly on its current path, further gradual increases in the federal funds rate will best promote these goals."
Powell offered insight into the Fed's plans for gradual rate hikes over time. He said that if the central bank were to move too slowly, it would have to enact swift monetary policy to catch up that could severely rock the economy. Conversely, moving too quickly would rattle the financial system. With that, Powell reiterated plans to continue on the path of gradual hikes.
As the Fed chairman detailed plans to continue raising interest rates, albeit at a slow pace, the stock market sunk even further. By the market close, the Dow Jones Industrial Average I:DJI shed 2.34%, the S&P 500 I:GSPC lost 2.19% and the Nasdaq Composite I:IXIC handed over 2.28%. The Dow had its worst day in two weeks and entered into correction territory.
Even before Powell took the stage, the stock market was struggling to find its footing in afternoon trading as the threat of a trade war with China roiled investors.
"After what at times has been a slow recovery from the global financial crisis and the great recession growth has now picked up," Powell said, adding that unemployment has fallen to 4.1% from a peak of 10% in 2009. The current rate is the lowest since 2000.
Jobs data took the bulk of Powell's initial comments. He explained that the labor market is "not excessively tight," citing the steady increase in wage gains in recent years.
"The absence of a sharper acceleration in wages suggests that the labor market is not excessively tight," Powell said. "I will be looking for an additional pickup in wage growth as the labor market strengthens further."
Powell said the Fed is expecting unemployment to fall below the 4% threshold and remain there for some time, a phenomenon that has not happened since the 1960s.
Watch Powell's appearance at the Economic Club of Chicago below:
Powell also offered insight on longer term growth in the U.S.
"Some of the factors weighing on longer term growth in the U.S. are likely be persistent, particularly the slowing in growth of the labor force," Powell said. "Others are harder to predict, like productivity."
"But as a nation we are not bystanders. We can put policies in place that will support labor force participation and give us the best chance to achieve broad and sustained increases in productivity and thus in living standards," Powell said.
He noted that those policies don't fall uniquely under the Fed's purview -- investing in education and infrastructure, Powell noted, is something more suited for Capitol Hill.
In questions, Powell addressed the possibility of tariffs, a threat Wall Street has been working through for several weeks.
"The discussion about tariffs is at a relatively early stage," Powell said, noting the the Fed spoke about the tariffs at their last meeting. He said it's simply too soon to know if tariffs could affect the economy in the near term.
"Tariffs can push up on prices, but it's' too early to say if that going to be something that happens or not," Powell said.
Powell hasn't historically been a positive influence on the stock market. Since taking the helm at the central bank earlier this year, Powell has appeared a handful of times in the public eye. When he testified in front of the House of Representatives on Feb. 27, the S&P 500 closed lower 1.27%. When he concluded Congressional testimony in front of the Senate on March 1, the index finished down 1.33%. On the day Powell assumed his role atop the Fed, the Dow endured its largest-ever single day point decline on Feb. 5.
Powell's Friday appearance came as Wall Street also worked to digest a somewhat lackluster jobs report released earlier in the day. The U.S. economy added 103,000 jobs in March, missing expectations and slowing significantly from the previous month. While it was a slower month for job growth, the more timid pace could mean the Fed will be able to continue its aim toward "gradual" rate increases instead of ramping up the pace to keep a too-hot labor market in check.
The Fed's Open Market Committee, which Powell leads, raised benchmark interest rates to between 1.5% and 1.75% last month in the sixth such hike since late 2015. It was the latest move in the Fed's slow-and-steady approach to ending its easy money policy implemented in the wake of the global financial crisis.