WASHINGTON, June 4 (Xinhua) -- Chairman of the U.S. Federal Reserve Jerome Powell said Tuesday that the central bank is "closely monitoring" current economic developments and "will act appropriately to sustain the expansion."
In prepared remarks to the "Conference on Monetary Policy Strategy, Tools, and Communications Practices" in Chicago, Powell highlighted the "recent developments involving trade negotiations and other matters," saying that policy-makers at the Fed "do not know how or when these issues will be resolved."
"We are closely monitoring the implications of these developments for the U.S. economic outlook and, as always, we will act as appropriate to sustain the expansion, with a strong labor market and inflation near our symmetric 2 percent objective," the central bank chief said.
Powell's speech came at a time when the market has been yearning for cuts to the federal funds rate and anticipated two rate cuts this year. The target range of the benchmark rate now remains at 2.25 percent to 2.5 percent after the Fed's latest policy meeting in May.
Analysts said the weak inflation keeps interest rates low and would give the Fed less room to cut rates should a next recession occur.
Powell reminded the audience of "a challenging environment" where questions brought about by low inflation emerge.
He stressed in particular the issue of "what unconventional tools a central bank might use to support the economy if interest rates fell to what we now call the effective lower bound (ELB)."
"In short, the proximity of interest rates to the ELB has become the preeminent monetary policy challenge of our time, tainting all manner of issues with ELB risk and imbuing many old challenges with greater significance," Powell said.
The issues that concern the Fed in the future, according to Powell, are threefold: whether the central bank is capable enough to reverse past misses of the inflation objective, if the Fed's monetary policy tools are adequate to achieve the dual mandate of maximum employment and price stability, and how best the Federal Open Market Committee (FOMC), the Fed's monetary policy-making body, can communicate its policy to the public.
"We believe our current policy framework is working well, and we have made no decisions about particular changes," Powell said. "In fact, the review is still in its early stages."
One particular focus, Powell said, involves the effectiveness of the "dot plot" of individual FOMC members' rate projections in times marked by unexpected situations. He suggested that the dot plot "might best be thought of as the least unlikely outcome" in times of high uncertainty.
"Perhaps it is time to retire the term 'unconventional' when referring to tools that were used in the crisis," Powell said. "We know that tools like these are likely to be needed in some form in future ELB spells, which we hope will be rare."