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Powell says bank will be patient as it mulls hikes

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The Federal Reserve is keeping its key interest rate unchanged and signaling that it could leave rates alone in coming months given economic pressures and mild inflation. (Jan. 30)
AP

Federal Reserve Chairman Jerome Powell said Tuesday that the central bank will take a “patient approach” as it weighs future interest rate hikes, echoing the more market friendly strategy he and other Fed officials have adopted the past couple of months.

With inflation muted, “That gives us the ability to be patient with monetary policy and that’s what we’re going to do,” Powell told the Senate banking committee. “This is a good time to be patient and watch and wait and see how the economy evolves.”

Powell said the economy grew “at a strong pace” last year and “the job market remains strong,” but he added that “conflicting signals” have emerged.

“While we view current economic conditions as healthy and the economic outlook as favorable, over the past few months we have seen some crosscurrents and conflicting signals,” he said. 

Powell and other Fed policymakers have made an abrupt reversal since raising interest rates in mid-December for the fourth time in 2018 and forecasting two more hikes this year.

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Markets plunged, viewing the central bank’s approach as too aggressive in light of a slowing global economy, a lingering trade fight with China and the fading effects of federal tax cuts and spending increases.

And since the tumbling markets hammered consumer and business confidence, risking the broader economy, Powell and other Fed policymakers promptly pulled back. In a statement after a late January meeting, the Fed said it will be “patient” as it considers future rate hikes. And at a news conference, Powell suggested a rate cut was just as likely as an increase. Markets, in turn, have rebounded strongly the past couple of months.

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Fed officials are also moving toward an agreement to stop reducing the Fed’s $4 trillion balance sheet later this year, sooner than expected, a strategy that should keep long-term rates slightly lower.

The Fed has been shrinking the portfolio of mortgage-backed securities on Treasurys that it amassed during and after the 2008 financial crisis to push down long-term rates. It had planned to leave the balance sheet at about $3 trillion, larger than pre-recession levels, but it now will likely maintain an even bigger $3.5 trillion portfolio, which should translate into slightly lower borrowing costs for consumers and businesses.

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Federal Reserve Chairman Jerome Powell said Friday that he will not resign if asked to do so by President Donald Trump. Powell said the central bank intends to be flexible going forward in determining when to hike its key policy rate. (Jan. 4)
AP

Read or Share this story: https://www.usatoday.com/story/money/2019/02/26/fed-interest-rates-powell-says-fed-patient-weighs-hikes/2986104002/


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