Powell: Fed 'Waiting and Watching' With Patience on Rates

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.

The S&P 500 edged up 0.45 percent on Thursday, while yields on Treasury securities were unchanged.

Even so, US central bankers face a challenging year that's complicating their communication.

On Thursday, Fed Vice Chairman Richard Clarida said in a speech that "inflation has surprised to the downside recently, and it is not yet clear that inflation has moved back" to the central bank's goal on a sustainable basis.

Initially, U.S. stocks fell on Powell's comments Thursday, including remarks that the Fed would continue to reduce its balance sheet to "be substantially smaller than it is now".

Powell on Thursday also reiterated that, separate from what happens with interest rates, the Fed would continue allowing its almost $4 trillion portfolio of bonds to shrink each month, to a level "substantially smaller" than it is now.

Still, Powell's comments and those of other officials "are developing a new narrative".

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

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". "That was conditional on a very strong outlook for 2019, an outlook that may still happen".

World Bank, an global financial institution, also expected the growth rate of the United States economy would drop to 2.5 percent in 2019.

"There is no pre-set path for rates. particularly now", he said.

"I don't see a recession" in 2019, Powell said Thursday in an interview at the Economic Club of Washington, D.C.

Despite his largely upbeat view on the U.S. economy, and clear signals the Fed will be patient about raising interest rates any higher - statements that helped equities to recovery - markets focused on those two words.

His biggest concern is weakening growth in China and Europe, although he warned a prolonged USA government shutdown could become a drag on the economy. The principal worry is global growth, he said in questioning by David Rubenstein, the co-founder of private-equity firm Carlyle Group, where Powell was previously a partner.

  • Wendy Palmer