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

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

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

Investors will be looking for new clues on USA interest rate policy when Federal Reserve Chairman Jerome Powell speaks before the Economic Club of Washington on Thursday afternoon.

He downplayed predictions from policymakers suggesting interest rates would be raised twice more this year.

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". 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. "You should anticipate that we're going to be patient and watching, and waiting and seeing". He said he didn't know the exact level. "The US economy is solid".

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 Fed has projected two more rate hikes, but Powell is now signaling the Fed will be "patient" on any further hikes.

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Speaking to an audience in Washington, Powell delivered the same reassuring message of restraint and flexibility that bolstered markets last Friday.

Clarida is the latest US central banker to refine the Fed's monetary message after the hawkish tone of their December 19 statement and forecasts for further rate hikes in 2019 roiled financial markets.

The monthly reductions, effectively running on autopilot, have been criticized by some as a steady tightening of financial conditions the Fed should reconsider.

The partial government shutdown is unlikely to leave a mark on the economy in the short term, though the Fed will have a less clear picture of growth without data from the Commerce Department, which releases figures including retail sales and gross domestic product. Markets have expressed concerns that the Fed's operations to reduce the balance sheet could be depressing the markets and ultimately slow growth.

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"Growth prospects in other economies around the world have moderated somewhat in recent months, and overall financial conditions have tightened materially, " he said in the text of a speech late Thursday in NY.

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.

While there is wide agreement that the United States 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. Financial markets are incorporating a variety of risks to the outlook, ranging from slowing global growth to the potential for a protracted trade war with China.

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