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

11 January, 2019, 08:52 | Author: Regina Silva
  • GS financial conditions index

While markets may be concerned about global trade tensions and slower growth overseas, Powell said there is no evidence of a USA recession on the horizon.

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

"We would have a less clear picture into the economy if it were to go on much longer", Powell said. "We don't get distracted".

"Chairman Powell chose to make no news at his latest interview".

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.

Trump has urged the Fed not to raise interest rates at all this year.

He also downplayed December predictions from Fed policymakers showing that, at the median, interest rates would be raised twice this year.

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That prospect has cheered markets, which had grown anxious that the Fed was not taking into account a variety of headwinds that could slow US growth this year. Minutes of the December meeting released on Wednesday showed that many officials felt the central bank "could afford to be patient about further policy firming", indicating the Fed could place interest rates on hold through March or longer as it waits for clarity on risks to global growth that could affect the USA economy. The Fed cut the rate to nearly zero during the financial crisis but has since raised it to a "neutral" level, meant to neither stimulate nor constrain the economy. Traders were already wary of statements Powell made in December about rate hikes. He also made clear that applies to the Fed's approach to its $4.1 trillion balance sheet, which the central bank is now reducing by a maximum of $50 billion per month.

Since the meeting, Fed officials have indicated they're less inclined to keep raising than their statement and projections for two hikes in 2019 had suggested.

Powell noted that the Fed's holdings were around $1 trillion before the 2008 crisis.

The balance sheet "will be substantially smaller than it is now", though bigger than it was before the crisis, Powell said. Markets have expressed concerns that the Fed's operations to reduce the balance sheet could be depressing the markets and ultimately slow growth.

Still, Powell's comments and those of other officials "are developing a new narrative".

In a speech Wednesday, Charles Evans, president of the Fed's Chicago regional bank, said that modest inflation allowed the Fed to "wait and carefully take stock of the incoming data and other developments" before deciding on future rate hikes.

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