Published: Fri, January 11, 2019
Markets | By Otis Pena

Fed chair Jerome Powell to speak on market concerns Thursday

Fed chair Jerome Powell to speak on market concerns Thursday

Federal Reserve Chairman Jerome Powell on Thursday (Jan 10) stressed again that the USA central bank can be patient in approving any further rate increases as officials gauge whether the US economy will slow this year, as some in financial markets worry, or continue motoring ahead as the Fed itself expects.

James Bullard, president of the St Louis Federal Reserve Bank, one of 12 in the Fed system and a voting member of the policy committee this year, called the current interest rate "a good level", in an interview with the Wall Street Journal.

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. 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. He also said he would "be patient" as the central bank determines when to hike interest rates next.

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While market reaction to Powell's comments was fairly muted, the S&P 500 index was down about 0.4 percent and 10-year Treasury yields hit a session high on Thursday afternoon, reflecting investors' sensitivity to any hint about how much longer the Fed will continue to pare its roughly $4-trillion portfolio of bonds.

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Still, Powell's comments and those of other officials "are developing a new narrative". He said the Fed's aim was to return the balance sheet to a "more normal level" but didn't specify what that level will be.

The US 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. The unemployment rate stands at 3.9 per cent and central bankers expect it to average 3.5 per cent in the final three months of this year.

At the same time, Powell said there are concerns in financial markets about slowing global growth and rising trade tensions. If conditions weaken, the Fed would react. He said an "extended" shutdown would show up in economic data "pretty quickly" and, since it shutters some agencies that provide economic data, it would also make the picture of the economy less clear for the Fed.

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.

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