Wednesday, 16 January, 2019

Fed Should Try to Offset Headwinds If They Persist, Clarida Says

GS financial conditions index US official warns of recession risk if interest rates go much higher
Ginger Lawrence | 11 January, 2019, 08:52

Thursday's brief drop stood in contrast to the response to Powell's remarks last Friday, when the Dow surged 747 points after Powell said the Fed is willing to be "patient" and "flexible" about future interest rate hikes - sentiments he reiterated Thursday. "It's a tightly integrated economy and financial markets will see the effects of that", he said.

Fed policy makers projected above-trend economic growth for this year in their December forecasts, and they expect the unemployment rate to fall further.

Earlier: Jerome Powell has been moving markets - up and down - lately. 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.

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

USA central bankers are refining their message after the hawkish tone of their December 19 statement and forecasts for further rate hikes in 2019 roiled financial markets. 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.

While market reaction to Powell's comments was fairly muted, the S&P 500 index was down about 0.4 percent and 10-year Treasury yields hit a session high on Thursday afternoon, reflecting investors' sensitivity to any hint about how much longer the Fed will continue to pare its roughly $4-trillion portfolio of bonds.

Mourinho rules out Benfica as he takes up pundit role
The chapter is finished and you don't go around making criticism", he said. That's how I felt when I went back to Chelsea.

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

Fed officials and many forecasters expect growth to slow in 2019, but to remain strong enough to continue generating jobs and keeping the unemployment rate near its nearly 50-year low.

The prospect of rising interest rates that could slow the economy spooked investors and contributed to the downturn in U.S. and global stock markets late past year. 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. 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 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.

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".