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Powell repeats pledge to remain 'patient' with rate hikes

11 January 2019

The Fed's favorite inflation gauge, the personal consumption expenditures price index, clocked in at a 1.8 percent year-over-year rate in November.

In that appearance Powell emphasized the Fed's flexibility and patience in evaluating data, easing expectations of steady rate hikes in a message amplified by a half dozen other Fed officials in recent days.

In his remarks before the Economic Club of Washington, Powell described the economy as strong at the end of past year, with the lowest unemployment levels in a half-century and solid gains in wages.

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After four rate hikes past year, 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.

But Fed Chairman Jerome Powell also sought to reassure financial markets last week, saying policymakers will be "patient" before making any further moves as they watch to see how the economy evolves and could react quickly to any changes. "It's a tightly integrated economy and financial markets will see the effects of that", he said.

Powell said that he had never met Trump before he was interviewed by the president in late 2017 for the Fed chairman's job. It would not want to wait too long to see overseas weakness affect the US economy, he added.

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"We would have a less clear picture into the economy if it were to go on much longer", Powell said.

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

He also said that the Fed had no preset path for rate hikes and would be "patient" when determining whether to hike interest rates further in response to strong US growth that risks sparking inflation, or to pause rate hikes to account for a global economic slowdown. Traders were already wary of statements Powell made in December about rate hikes.

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Powell was also asked about the Fed's plans to keep trimming its holdings of Treasury bonds and mortgage-backed securities, which it had purchased following the 2008 financial crisis as a way to keep long-term interest rates low and support an economy as it struggled to climb out of the worst recession since the 1930s. 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. 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.

Powell repeats pledge to remain 'patient' with rate hikes