Powell Says Fed Is 'Waiting and Watching' With Patience on Rates

11 January, 2019, 21:43 | Author: Mary Valdez
  • GS financial conditions index

Federal Reserve Chairman Jerome Powell said Thursday that the central bank has the ability to be "patient" in determining when to hike interest rates.

"We are very focused on our job", Powell said.

After four rate hikes previous year, the Fed would be "bordering on going too far and possibly tipping the economy into recession" if rates go higher, Bullard said, adding that he would be willing to cut interest rates if needed. He said an "extended" shutdown would show up in economic data "pretty quickly" and, since it shutters some agencies that provide economic data, it would also make the picture of the economy less clear for the Fed.

"The long-run fiscal, nonsustainability of the USA federal government isn't really something that plays into the medium term that is relevant for our policy decisions", Powell added.

Speaking to an audience in Washington, D.C, Powell delivered the same reassuring message that bolstered markets last Friday.

With no sign of excessive inflation or outsized risk in financial markets, Powell said the Fed would be "waiting and watching" in coming months.

The Fed chair will be taking questions in what will be his first major comments since the central bank took a decidedly more cautious tone about its future pace of interest rate hikes. Bloomberg's financial conditions index has retraced much of its December tightening.

USA stocks initially turned lower after Powell said the central bank is sticking with its process of shrinking its balance sheet to a more normal level, which removes stimulus put into place to revive the economy following the financial crisis and recession a decade ago. The principal worry is global growth, he said in questioning by David Rubenstein, the co-founder of private-equity firm Carlyle Group, where Powell was previously a partner.

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"It will be substantially smaller than it is now", Powell said.

He agreed with the prevailing view of the U.S. economy slowing to around 2.25-2.5 per cent this year, with unemployment holding around the current 3.9 per cent.

He also anxious about the lack of key economic statistics during the government shutdown that the Fed uses to take the temperature of the economy.

Many business leaders remain optimistic about the United States economy this year, despite higher interest rates and large swings in the stock market.

The central bank's quarterly forecast in December showed Fed officials still expect two more increases in 2019.

"There is no pre-set path for rates. particularly now", he said.

Powell also repeated his comments that attacks by President Donald Trump on the Fed's rate hike policies were not having an impact on Fed decisions, which he said were aimed at achieving the Fed's two goals of maximum employment and stable prices.

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