Federal Reserve Chair sees “sustained expansion of economic activity…strong labor market.”

Jerome Powell, chair of the Federal Reserve, today offered a generally positive outlook for the national economy. In testimony to the Joint Economic Committee, Powell said,

Looking ahead, my colleagues and I see a sustained expansion of economic activity, a strong labor market, and inflation near our symmetric 2 percent objective as most likely. This favorable baseline partly reflects the policy adjustments that we have made to provide support for the economy. However, noteworthy risks to this outlook remain. In particular, sluggish growth abroad and trade developments have weighed on the economy and pose ongoing risks. Moreover, inflation pressures remain muted, and indicators of longer-term inflation expectations are at the lower end of their historical ranges. Persistent below-target inflation could lead to an unwelcome downward slide in longer-term inflation expectations. We will continue to monitor these developments and assess their implications for U.S. economic activity and inflation.

The Economic and Revenue Forecast Council similarly projected slow growth here, acknowledging similar risks.

As Barron’s reports, Powell’s outlook is consistent with previous comments.

…good luck finding anyone who expects Powell to say something surprising—if for no other reason than Powell already said what needed to be said atOctober’s Federal Open Market Committee meeting.

At the time, Powell touted the strength of the U.S. consumer and the strong labor market, and played down the likelihood of manufacturing weakness having an impact on consumer spending. He also said that “monetary policy was in ‘a good place’ after the latest rate cut,” writes NatWest Markets’Kevin Cummins, and “indicated that a ‘material reassessment’ of the Fed’s outlook was a pre-requisite for further rate cuts.” Nothing we’ve seen since then would seem to have reached that level. It isn’t even close.

Recent data suggests that growth remains solid if not spectacular. The economy expanded at a 1.9% annual rate in the July-September quarter, down from 3.1% in the first three months of the year. The unemployment rate is near a 50-year low of 3.6% and hiring is strong enough to potentially push the rate even lower.

There are risks, the AP writes.

Powell on Wednesday also urged Congress to lower the federal budget deficit so that lawmakers would have more flexibility to cut taxes or boost spending to counter a future recession.

“The federal budget is on an unsustainable path, with high and rising debt,” Powell said. “Over time, this outlook could restrain fiscal policymakers’ willingness or ability to support economic activity during a downturn.”

Powell further said in his written testimony.

Overall, investor appetite for risk appears to be within a normal range, although it is elevated in some asset classes. Debt loads of businesses are historically high, but the ratio of household borrowing to income is low relative to its pre-crisis level and has been gradually declining in recent years. The core of the financial sector appears resilient, with leverage low and funding risk limited relative to the levels of recent decades….

He further acknowledged the risk posed by a rising national debt.

In a downturn, it would also be important for fiscal policy to support the economy. However, as noted in the Congressional Budget Office’s recent long-term budget outlook, the federal budget is on an unsustainable path, with high and rising debt: Over time, this outlook could restrain fiscal policymakers’ willingness or ability to support economic activity during a downturn. In addition, I remain concerned that high and rising federal debt can, in the longer term, restrain private investment and, thereby, reduce productivity and overall economic growth.

Recession fears remain muted. But the caution flags should not be ignored.