Powell repeats pledge to remain 'patient' with rate hikes

Daniel Fowler
January 11, 2019

Powell's comments were similar to remarks he made last Friday in Atlanta where he said the Fed could afford to be "patient" in determining when to raise interest rates again given that inflation has remained muted.

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. 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.

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 U.S. economy is solid", Mr. Powell said. Bloomberg's financial conditions index has retraced much of its December tightening.

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

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

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.

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"If we find that the ongoing program of balance sheet normalization or any other aspect of normalization no longer promotes the achievement of our dual-mandate goals, we will not hesitate to make changes, " Clarida said.

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

Many business leaders remain optimistic about the USA economy this year, despite higher interest rates and large swings in the stock market. The unemployment rate stands at 3.9 per cent and central bankers expect it to average 3.5 per cent in the final three months of this year.

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. If global growth slows more, "I can assure you. we can flexibly and quickly move policy, and we can do so significantly if that's appropriate", he added.

The Fed chair also said the slowdown in China specifically "is a concern, is something we're watching".

"If we have an extended shutdown, I do think that would show up in the data pretty clearly", Powell said.

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