Economy

Fed's Powell again stresses patience as USA economy's 'narrative' unfolds

Fed's Powell again stresses patience as USA economy's 'narrative' unfolds

Federal Reserve Chairman Jerome Powell said he doesn't see a US recession in the near future, despite the rising likelihood of slowing growth elsewhere around the globe.

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. It would not want to wait too long to see overseas weakness affect the USA economy, he added.

Powell said that he had never met Trump before he was interviewed by the president in late 2017 for the Fed chairman's job.

Powell on Thursday also reiterated that, separate from what happens with interest rates, the Fed would continue allowing its almost US$4 trillion portfolio of bonds to shrink each month, to a level "substantially smaller" than it is now. 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 US economy. 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.

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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. "That was conditional on a very strong outlook for 2019", which may or may not materialize, with the Fed adjusting policy accordingly.

Powell also said he didn't see signs of a recession in the near term, but noted that his "principal worry" was a slowdown in global growth and that while the United States economy appears "solid", a slowdown in China "is a concern". 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. He said an "extended" shutdown would show up in economic data "pretty quickly" and, since it shutters some agencies that provide economic data, it would also make the picture of the economy less clear for the Fed.

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.


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