Fed chair Jerome Powell to speak on market concerns Thursday

Lloyd Doyle
January 11, 2019

The US economy is in good shape but could be pushed into recession if the central bank goes "too far" in raising interest rates, a senior Federal Reserve official said Wednesday.

Clarida repeated Powell's assertion earlier in the day that monetary policy was not on a preset course. Several of his recent appearances have generated large market swings in both directions.

"We are in a place where we can be patient and flexible and see what does evolve", Powell said. Yesterday the Australian share market closed 0.3 per cent higher or 17 points higher at 5,795.

He also downplayed December predictions from Fed policymakers showing that, at the median, interest rates would be raised twice this year.

Asked if the Fed still plans two rate hikes, Powell emphasized there is not on a set course. "The principal worry is global growth", he said.

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.

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.

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.

"We are very focused on our job", Powell said.

The U.S. central bank raised rates four times past year in the face of robust economic growth and unemployment that touched its lowest level in half a century.

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.

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. If conditions weaken, the Fed would react. 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.

JPMorgan Chase has estimated that the partial government shutdown - which is 20 days old Thursday - is shaving $US1.5 billion off the economy each week, a modest amount in the context of a $US20 trillion economy, the damage will keep growing.

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

Other reports by Iphone Fresh

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