Thu. Jan 24th, 2019

Fed’s Powell Affirms Flexible Rate Outlook

WASHINGTON—Federal Reserve Chairman Jerome Powell reiterated Thursday the central bank would be patient in raising interest rates this year after global growth worries gripped financial markets in recent weeks.

During an appearance at the Economic Club of Washington, D.C., Mr. Powell largely stuck to the market-friendly tone he offered at a similar question-and-answer session in Atlanta last week.

“We are in a place where we can be patient and flexible and wait and see what does evolve,” Mr. Powell said Thursday. He was interviewed by David Rubenstein, a co-founder of

Carlyle Group

LP, the private-equity firm where Mr. Powell worked from 1997 to 2005.

He used the word “patient” or “patiently” five times during Thursday’s interview when referring to the path of interest-rate increases.

Fed officials have laid the groundwork to take a break from raising short-term interest rates in the coming months, particularly if the economy appears to take a greater hit from weakness abroad and market movements.

“The U.S. economy is solid,” Mr. Powell said. “The principal worry I would have is global growth,” which is slowing somewhat. “The question would be how much does that affect us,” he added, noting that global economies are more interconnected today than in the past.

Fed Chairman Jerome Powell said he doesn’t yet see tariffs as having a visible mark on either the U.S. or China, but higher, long-lasting tariffs could in the long-run lead to a less-productive economy around the world. Photo: Getty

The slowdown in China’s economy “is a concern, is something we’re watching,” Mr. Powell said. Increased tariffs between the U.S. and China haven’t left a visible mark on either economy, he added.

Separately, Mr. Powell said the central bank hadn’t decided on the ultimate size of its portfolio of bonds and other assets, which swelled from less than $1 trillion before the 2008 financial crisis to a peak of $4.5 trillion following repeated asset-purchase programs aimed at stimulating economic growth.

The Fed stopped adding to those holdings in 2014 but kept them steady through most of 2017, when it began to allow some bonds to mature without replacing them. The Fed isn’t selling any of its holdings, which have declined to less than $4.1 trillion.

Fed officials have said consistently that when they are done shrinking those holdings, the portfolio will be larger than it was before the crisis but smaller than it was at its peak. Mr. Powell said Thursday the portfolio would be “substantially smaller than it is now” and signaled no change in the current approach.

Some investors have pointed to the runoff as a contributor to recent market volatility. Last week, Mr. Powell said he didn’t think that was the case, but the central bank would change course if it came to a different conclusion.

Minutes from the Fed’s December policy meeting showed officials have been studying demand for the central bank’s liabilities, particularly bank deposits known as reserves, to determine when to end or whether to slow the runoff. The debate is separate from considerations over whether to provide more or less support to the economy.

After their worst two-day start to a year since 2000, stock prices bounced back strongly last Friday after a robust employment report and Mr. Powell’s market-sensitive comments. Shares rallied earlier this week amid optimism about the latest round of U.S.-China trade negotiations, and again Thursday after the Fed chief reaffirmed the central bank’s willingness to be cautious about raising rates.

Fed officials last month raised their benchmark rate by a quarter percentage point to a range between 2.25% and 2.50% and penciled in two increases this year, assuming the economy would grow about 1.9%, the annual rate they see as likely over the long run.

Markets fell during Mr. Powell’s press conference following last month’s meeting. Investors grew worried the Fed wouldn’t be sensitive to falling corporate bond prices, stock declines and other signs of tighter financial conditions amid broader anxieties from a global growth slowdown and trade tensions between the U.S. and China.

Mr. Powell and his colleagues over the past week have allayed those worries by signaling the Fed is in no rush to raise rates again, likely putting the central bank on hold for at least the next few months. If the U.S. economy remains solid over the next few months, the Fed could still raise rates after that.

“There is no preset path for rates,” Mr. Powell said Thursday when asked about last month’s projection of two more rate increases this year. “We’ll take into account tightening financial conditions, which we’ve seen, and we’ll also lower our rate path and try to have monetary policy offset weakness before it even happens.”

He said he didn’t see any sign that the possibility of a recession is elevated in the near term.

Mr. Powell has used recent public appearances to assure audiences the Fed won’t be swayed by President Trump’s sustained criticism of its rate increases.

The president lobbied the central bank not to raise rates last month and complained to advisers about Mr. Powell after the 10-member rate-setting committee voted unanimously to do so.

Mr. Trump’s advisers have floated the idea of a face-to-face meeting between Mr. Powell and the president. While it isn’t unusual for presidents to meet with Fed chiefs, some market commentators have warned that such a meeting would be riskier for Mr. Powell if Mr. Trump were to misrepresent the Fed leader’s views in an effort to cheer markets.

Mr. Powell said Thursday he hadn’t received any invitation to such a meeting but signaled he wouldn’t turn one down if it was extended. “I’m not aware of any Fed chair turning down an invitation” to meet with the president, he said Thursday.

Write to Nick Timiraos at nick.timiraos@wsj.com

Via wsj

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