Sunday, 24 March, 2019

Fed chair Jerome Powell to speak on market concerns Thursday

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

The speech reinforces comments by other policy makers this month that the Fed is likely to keep interest rates on hold through at least March following four hikes in 2018. "It's a tightly integrated economy and financial markets will see the effects of that", he said.

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

"Growth prospects in other economies around the world have moderated somewhat in recent months, and overall financial conditions have tightened materially, " he said in the text of a speech late Thursday in NY.

US Federal Reserve Board Chairman Jerome Powell participates in a luncheon discussion hosted by the Economic Club in Washington, US, Jan. 10, 2019.

That prospect has cheered markets, which had grown anxious that the Fed was not taking into account a variety of headwinds that could slow USA growth this year. Big picture: "they don't have that much further to go and they don't have to go there fast", said Robert Tipp, chief investment strategist with PGIM Fixed Income in Newark, New Jersey.

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.

Part of that message is meant to downplay the significance of the policy projections that officials issue every three months.

Apple cuts 1Q production for new iPhones by 10 pct
Shares of Foxconn, the world's biggest electronics contract manufacturer, were up 1.6 percent while Pegatron was up 1.3 percent. "We believe the economic environment in China has been further impacted by rising trade tensions with the United States".

Asked what qualifies for "normal", Powell said "I don't know the exact level."He noted that the balance sheet has declined to about $4 trillion, but that before the 2008 crisis it was below $1 trillion". Traders were already wary of statements Powell made in December about rate hikes. "That was conditional on a very strong outlook for 2019", which may or may not materialize, with the Fed adjusting policy accordingly.

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.

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. If conditions weaken, the Fed would react.

"Notwithstanding strong economic growth and a low unemployment rate, inflation has surprised to the downside recently, and it is not yet clear that inflation has moved back to 2 percent on a sustainable basis, " Clarida said. "The principal worry we have is global growth" in Asia, Europe and elsewhere.

The Fed chief was also asked about the partial USA government shutdown.

"If we have an extended shutdown, I do think that would show up in the data pretty clearly", Powell said.

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