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

Andrew Cummings
January 11, 2019

During a lunchtime appearance at the Economic Club of Washington, D.C., Powell sounded optimistic about the USA economy but cautioned that it was unclear whether slowdowns in Asia and Europe could become a drag on the U.S.

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.

The central bank's vice chairman, Richard Clarida, said later on Thursday that if the global slowdown and tightening of financial markets persists, the Fed would take policy steps to offset that.

Earlier: Jerome Powell has been moving markets - up and down - lately.


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. 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. The latest forecasts issued in December suggested rates could rise by a median of two more times in 2019, but Powell said it was a mistake to construe that as any sort of official forecast or "plan". He said the Fed's aim was to return the balance sheet to a "more normal level" but didn't specify what that level will be.

The U.S. central bank raised rates four times previous year in the face of robust economic growth and unemployment that touched its lowest level in half a century.

Powell also said he didn't see signs of a recession in the near term, but noted that his "principal worry" was a slowdown in global growth and that while the USA economy appears "solid", a slowdown in China "is a concern".

He agreed with the prevailing view of the United States economy slowing to around 2.25-2.5 per cent this year, with unemployment holding around the current 3.9 per cent. If conditions weaken, the Fed would react.


"Notwithstanding strong economic growth and a low unemployment rate, inflation has surprised to the downside recently, and it is not yet clear that inflation has moved back to 2 percent on a sustainable basis, " Clarida said.

The Fed chief was also asked about the partial US government shutdown.

The Fed chair, who has been publicly criticised repeatedly by President Donald Trump in recent months, warned that if there is an "extended shutdown", it would have an impact on the economy that "would show up in the data very clearly".


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