Jerome H. Powell Says Federal Reserve Will Be Patient

Powell

On Friday, Jan. 4, 2019, the chairman of the Federal Reserve Jerome H. Powell stated that low inflation would allow the Federal Reserve to be “patient” while considering whether to continue to raise the interest rate. This will give the central bank more time to assess whether economic growth is slowing. Additionally, this will help calm jittery financial markets.

In recent months, Maine Street and Wall Street have diverged. Stock prices have dropped, prompting warnings that a long-running economic expansion is drawing to a close. Regardless, broader measures of economic activity have remained strong, including a report released on Friday that showed the economy has added 312,000 jobs in December.

Friday, Powell delivered a message at an economic conference in Atlanta, stating that the Federal Reserve is withholding judgement on the health of the economy. He believes in remains healthy but sought to reassure investors that policymakers are closely watching for signs of weakness and are not in a rush to raise interest rates again.

With the muted inflation readings that we’ve seen coming in, we will be patient as we watch to see how the economy evolves.

In December 2018, the Federal Reserve predicted that is would raise interest rates twice in 2019. However, Powell said the central bank was ready to significantly change course if necessary.

Stock prices began to climb when the markets opened on Friday after the data on December jobs was released and they continued to rise as Powell spoke at the conference. He shared the stage with immediate predecessors, Janet Yellen and Ben S. Bernanke.

Additionally, Powell is looking to ease the concerns in financial markets about the Federal Reserve’s gradual reduction of it holding of Treasuries and mortgage bonds, which were purchased in large quantities during the financial crisis to bolster the economy. There are some analysts who have argued that the retreat by the Federal Reserve, which involves selling the securities, is exacerbating the current volatility in financial markets. Powell and the Federal Reserve disagree with that assessment. Powell stressed that policymakers are paying attention to signs of potential stress and they are prepared to adapt.

If we ever came to the conclusion that any aspect of our plans were causing a problem, we wouldn’t hesitate to change it.

In 2018, the Federal Reserve raised its benchmark rate four times. It is now at the lower end of the range Fed officials consider “a reasonable estimate of neutrality.” This means the central bank is currently not discouraging or encouraging economic growth.

President Donald J. Trump and other critics believe the economy still needs help from the Federal Reserve. Currently, inflation remains below the 2 percent annual pace the Fed regards as optimal. This suggests that the economy still has room to grow, and “workers are only beginning to reap the benefits of an expansion that is now in its 10th year.”

On Thursday, markets fell due to an unexpected decline in manufacturing activity. There are also concerns about global growth and trade tensions between the United States and China. Companies such as FedEx and Apple have issued warnings about the health of their businesses.

Trump has repeatedly criticized the Federal Reserve for the decline in the market and he has complained to aides that the rate increases under the watchful eye of Powell would turn Trump into Hoover, a reference to the president during the Great Depression’s early years. Officials at the White House have been discussing whether to have Trump meet with Powell, whom was installed as chairman by the president.

Economics writer for The New York Times, Neil Irwin has been questioning Powell and suggested that he was willing to meet with Trump as other Fed chairs have done in the past. It would be unusual for a president and a Fed chair not to meet. However, no such meeting has been scheduled.

Powell added that the Federal Reserve would continue to make policy without regard to Trump’s point of view.

I want the public to be assured that we have a strong culture, it’s not a fragile one, it’s not being disrupted.

When asked if he would resign if Trump asked him to, Powell replied, “No.”

Fed official, including Powell, argue that maintaining the Federal Reserve’s stimulus campaign would cause the economy to overheat. It is noted that the unemployment rate, which was 3.9 percent in December, remains close to the lowest rate in the last half century.

In December, the Federal Reserve had a policymaking meeting. It raised its benchmark rate while signaling plans for the two rate increases in 2019. At a post-meeting news conference, Powell seemed to take a resolute line, insisting the economy was in good health and playing down the decline in stock prices as a portent of slower growth.

On Friday, Powell presented a refined version of the same message. Just like in December, his speech began by highlighting the health of the economy.

2018 was a good year for the U.S. economy, according to Powell. The economic data suggested there was an ongoing momentum in the economy heading into 2019. Powell welcomed the increase wage growth included in the jobs report on Friday. He stated it did not “raise concerns about too-high inflation.” This would be a signal to markets that the report was unlikely to accelerate plans for rate increases.

Additionally, Powell stated that the decline in stock prices was being driven by fear, not data.

I think the markets are pricing in downside risks. They’re well ahead of the data.

By Jeanette Smith

Sources:

The New York Times: Powell Says Fed Is Prepared to ‘Shift’ Path as Economic Data Warrants
The Wall Street Journal: U.S. Stocks Surge on Powell Remarks, Jobs Report
Reuters: Fed will be patient, sensitive to risks in markets: Powell

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