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

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

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

Federal Reserve Chair Jerome Powell, one of the nation's top economic policymakers, predicted the economy is not going to plunge into a deep downturn this year.

That was enough to give traders pause and send the Dow Jones industrials down more than 40 points.

"The word "patient" is used often when the Fed's policy direction is still tightening but its next rate hike can wait for a considerable time".

However, St Louis Fed President James Bullard warned that the central bank could push the economy into recession if it raised rates much further. The Fed will instead depend on the freshest economic data in determining future changes to borrowing costs, he said. The Fed has projected two more rate hikes, but Powell is now signaling the Fed will be "patient" on any further hikes. 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.

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

However, the Fed chief is less bullish on the world economy.

The balance sheet "will be substantially smaller than it is now", though bigger than it was before the crisis, Powell said. In contrast, his remarks in his three previous appearances since late November moved stocks an average of 2.4 percent in either direction, and his comments last Friday spurred the largest market reaction yet to any of his 17 public appearances since taking office last February.

He remains upbeat about the United States economy, saying inflation is likely to hold near the Fed's two percent target, and does not see a risk of a United States recession anytime soon.

He acknowledged lower growth expectations globally, and tighter financial conditions over the last few months.

While most previous shutdowns have been fairly short and have not affected the economy in the aggregate, Powell said, "if we have an extended shutdown, I think that would show up in the data pretty clearly".

The question of whether President Donald trump have found harsh warnings of a rate increase hearing, is idle.

About 800,000 federal workers, including air traffic controllers and members of the Coast Guard, have been without pay for three weeks.

The dollar's resilience can be partly explained by the fact that fears are growing about a global recession which has added to the dollar's safe haven appeal, he said.

S&P Global Ratings estimated that the shutdown will trim 0.05 percent off of US GDP each week.

Powell also noted that it's a problem that the Commerce Department is mostly shuttered, which means key economic data such as retail sales and growth in gross domestic product won't be released later this month unless the government reopens.

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