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

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Federal Reserve Chairman Jerome Powell said Thursday that the central bank has the ability to be "patient" in determining when to hike interest rates. "The US economy is solid".

"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.

Powell pointed out that the USA may be more vulnerable to a slowdown in global growth because of the rise on globalized business and supply chains.

The Fed chief was also asked about the partial United States government shutdown. He brushed off the idea that tariffs were having a bit impact on either the USA economy or China's, saying trade disputes had not left a "visible mark" on the economies of either country.

The Fed last increased its base rate in December, the fourth... Minutes of the December meeting released on Wednesday showed that many officials felt the central bank "could afford to be patient about further policy firming", indicating the Fed could place interest rates on hold through March or longer as it waits for clarity on risks to global growth that could affect the USA economy.

"We are in a place where we can be patient and flexible and see what does evolve", Powell said.

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

Powell also said he didn't see signs of a recession in the near term, but noted that his "principal worry" was a slowdown in global growth and that while the USA economy appears "solid", a slowdown in China "is a concern". 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.

Clarida is the latest US central banker to refine the Fed's monetary message after the hawkish tone of their December 19 statement and forecasts for further rate hikes in 2019 roiled financial markets.

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".

Since the meeting, Fed officials have indicated they're less inclined to keep raising than their statement and projections for hikes in 2019 had suggested.

While there is wide agreement that the USA 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.

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