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Powell repeats pledge to remain 'patient' with rate hikes

11 January 2019

U.S. central bankers "can afford to be patient" before raising interest rates again, given low inflation and uncertainty about the outlook, according to the minutes of the Federal Reserve's December policy meeting.

In his remarks before the Economic Club of Washington, Powell described the economy as strong at the end of previous year, with the lowest unemployment levels in a half-century and solid gains in wages.

Before those comments, investors had been sending stocks lower out of fears that the Fed would make a mistake and tighten credit too much, possibly sending the economy into a recession.

Powell also said he didn't think it would be appropriate to reject an invitation to meet with Trump, but he hasn't yet received such an invitation.

"It's a tightly integrated economy and financial markets will see the effects of that", he said.

Asked if the Fed still plans two rate hikes, Powell emphasized there is not on a set course. "We don't get distracted".

Earlier: Jerome Powell has been moving markets - up and down - lately.

Powell seemed open to, though not enthusiastic, about a potential meeting with Trump.

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Trump stepped up his criticism of the Fed's string of rate hikes past year after the market started falling sharply in October.

The Fed chair will be taking questions in what will be his first major comments since the central bank took a decidedly more cautious tone about its future pace of interest rate hikes.

He also downplayed December predictions from Fed policymakers showing that, at the median, interest rates would be raised twice this year. The Fed cut the rate to nearly zero during the financial crisis but has since raised it to a "neutral" level, meant to neither stimulate nor constrain the economy.

Fed policy makers projected above-trend economic growth for this year in their December forecasts, and they expect the unemployment rate to fall further.

He agreed with the prevailing view of the U.S. economy slowing to around 2.25-2.5 per cent this year, with unemployment holding around the current 3.9 per cent.

Powell noted that the Fed's holdings were around $1 trillion before the 2008 crisis.

The balance sheet "will be substantially smaller than it is now", though bigger than it was before the crisis, Powell said. Markets have expressed concerns that the Fed's operations to reduce the balance sheet could be depressing the markets and ultimately slow growth. Powell and several other Fed officials have recently begun stressing the idea that the Fed can afford to be "patient" when it comes to raising rates because inflation is so low.

Powell repeats pledge to remain 'patient' with rate hikes