Powell: Fed can be patient as US economy evolves in 2019

Bullard Warns of a U.S. Recession If Fed Keeps Raising RatesMore

Bullard Warns of a U.S. Recession If Fed Keeps Raising RatesMore

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.

Why? Powell said recent recessions have been caused by the Fed having to "hit the brakes" to combat high inflation or "asset bubbles".

Even so, USA central bankers face a challenging year that's complicating their communication.

Clarida repeated Powell's assertion earlier in the day that monetary policy was not on a preset course.

In remarks at an appearance in Little Rock, Arkansas, on Thursday, St. Louis Fed President James Bullard was blunt, saying that the central bank had reached the "end of the road" in its current rate increase cycle.

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

With no sign of excessive inflation or outsized risk in financial markets, Powell said the Fed would be "waiting and watching" in coming months to see which of those two competing "narratives" plays out.

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The Fed chair will be taking questions in what will be his first major comments since the central bank took a decidedly more cautious tone about its future pace of interest rate hikes. He also said he would "be patient" as the central bank determines when to hike interest rates next. Bloomberg's financial conditions index has retraced much of its December tightening.

Powell said, for now, there is no evidence suggesting an elevated possibility of a recession. The Fed has projected two more rate hikes, but Powell is now signaling the Fed will be "patient" on any further hikes. 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.

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 U.S. 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.

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 USA economy appears "solid", a slowdown in China "is a concern".

"There is no pre-set path for rates. particularly now", he said.

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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