Federal Reserve Chairman Jerome Powell said Thursday that the U.S. economy was hit by a severe “confidence shock” in May from which it has only partly recovered.
“You saw business confidence surveys…quite negative, fairly broadly,” Powell said, in testimony to the Senate Banking Committee.
“Some of that has recovered,” but only after the Fed “stepped forward” and said it was willing in lower interest rates, Powell said.
The Fed chairman’s comments answer the question of why the central bank seems poised to ease monetary policy as soon as the end of the month.
In his testimony to the House on Wednesday, Powell set the stage for a rate cut as early as the end of this month, saying trade uncertainties and global growth were weighing on the economy.
Read: Fed’s Powell says trade worries restraining the economy, hints at interest-rate cuts soon
On Thursday, the Fed chairman described the economy as in “a very good place” and explained the central bank’s monetary policy initiative as attempting to sustain the expansion that has entered a history-making 11th year as of the end of June.
“It is very important that this expansion continue as long as possible,” Powell added.
The Fed chairman said his main concern was the poor outlook for manufacturing “around the globe.”
“If you talk to international economic authorities, people are very concerned about global growth and we will feel that over time,” he said. “That is the main thing I worry about,” he said.
In a separate interview on Tuesday, Richmond Fed President Thomas Barkin rejected the notion that the economy was slipping into a recession.
“I actually still feel pretty good about the economy,” Barkin said, in an interview on Bloomberg Television. “I don’t see any issues on the consumer side of the house,” Barkin added. He said household spending makes up about 70% of gross domestic product.
Stocks were higher Thursday on expectations of central-bank stimulus with the Dow Jones Industrial Average DJIA, +0.75% up 193 points in midday dealings.