Fed Should Try to Offset Headwinds If They Persist, Clarida Says
11 January, 2019, 08:56 | Author: Eric Barnett
He also downplayed December predictions from Fed policymakers showing that, at the median, interest rates would be raised twice this year.
"We have the ability to be patient and watch patiently and carefully as we see the economy evolve and figure out which of these two narratives is going to be the story of 2019", Powell said.
James Bullard, president of the St Louis Federal Reserve Bank, one of 12 in the Fed system and a voting member of the policy committee this year, called the current interest rate "a good level", in an interview with the Wall Street Journal.
Clarida repeated Powell's assertion earlier in the day that monetary policy was not on a preset course.
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.
"I don't see a recession", Powell said. "The U.S. economy is solid".
While market reaction to Powell's comments was fairly muted, the S&P 500 index was down about 0.4 percent and 10-year Treasury yields hit a session high on Thursday afternoon, reflecting investors' sensitivity to any hint about how much longer the Fed will continue to pare its roughly $4-trillion portfolio of bonds.
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.
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.
The US central bank raised rates four times a year ago in the face of robust economic growth and unemployment that touched its lowest level in half a century.
"Financial markets are expressing a view of concern about downside risks associated with global growth and with trade", Powell said.
While there is wide agreement that the USA economy will grow more slowly than the roughly 3 per cent rate of 2018, there's a lot of debate about how fast the slowdown will be. If conditions weaken, the Fed would react. 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.
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.
"If we have an extended shutdown, I do think that would show up in the data pretty clearly", Powell said.
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