Wednesday, 20 March, 2019

Powell: Fed can be patient as U.S. economy evolves in 2019

US official warns of recession risk if interest rates go much higher Fed chair Jerome Powell to speak on market concerns Thursday
Priscilla Morrison | 11 January, 2019, 08:52

It would not want to wait too long to see overseas weakness affect the USA economy, he added.

After four rate hikes a year ago, 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.

Speaking at the Economic Club of Washington, Powell reiterated that the U.S. central bank has the ability to be patient on monetary policy given stable price measures.

Fed policy makers projected above-trend economic growth for this year in their December forecasts, and they expect the unemployment rate to fall further.

Powell's second appearance in less than a week generated a subdued response in financial markets, a sign he may have found his footing in how to describe central bank policy without surprising investors.

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

The prospect of rising interest rates that could slow the economy spooked investors and contributed to the downturn in United States and global stock markets late a year ago. Big picture: "they don't have that much further to go and they don't have to go there fast", said Robert Tipp, chief investment strategist with PGIM Fixed Income in Newark, New Jersey.

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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.

Powell also said he didn't think it would be appropriate to reject an invitation to meet with Trump, but he hasn't yet received such an invitation.

Powell was also asked about the Fed's plans to keep trimming its holdings of Treasury bonds and mortgage-backed securities, which it had purchased following the 2008 financial crisis as a way to keep long-term interest rates low and support an economy as it struggled to climb out of the worst recession since the 1930s.

USA central bankers are refining their message after the hawkish tone of their Dec 19 statement and forecasts for further rate hikes in 2019 roiled financial markets.

Those holdings are being reduced slowly as the securities mature, dropping by about $50 billion per month, and now stand around $4 trillion, down from a high around $4.5 trillion.

At the same time, Powell acknowledged that financial markets are expressing concern about risks.

Powell's comments on Fed patience were similar to the message in the minutes of the Fed's December meeting as well as the comments of other Fed officials this week. Powell and several other Fed officials have recently begun stressing the idea that the Fed can afford to be "patient" when it comes to raising rates because inflation is so low.

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