Published: Fri, January 11, 2019
Finance | By Loren Pratt

What Powell is saying

What Powell is saying

"If we have an extended shutdown, I do think that would show up in the data pretty clearly", Powell said.

"Especially with inflation low and under control, we have the ability to be patient and watch patiently and carefully as we. figure out which of these two narratives is going to be the story of 2019", Powell said at the Economic Club of Washington. They later rallied, with the S&P 500 Index closing about 0.5 per cent higher. 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. He said he didn't know the exact level.

That prospect has cheered markets, which had grown anxious that the Fed was not taking into account a variety of headwinds that could slow US growth this year. The Fed's communications - and a Bloomberg News report that President Donald Trump had discussed firing Powell - helping bring on the worst December for stocks since the Great Depression. Traders were already wary of statements Powell made in December about rate hikes.

Speaking to an audience in Washington, Powell delivered the same reassuring message of restraint and flexibility that bolstered markets last Friday.

The more flexible approach, apparent in the minutes and in recent speeches, has supported stock prices.

"I don't see anything that suggests the possibility of a recession in the near term is at all elevated", he said.


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. Markets have expressed concerns that the Fed's operations to reduce the balance sheet could be depressing the markets and ultimately slow growth.

The central bank's vice chairman, Richard Clarida, said later on Thursday that if the global slowdown and tightening of financial markets persists, the Fed would take policy steps to offset that. Rubenstein also hosts an interview show on Bloomberg Television.

Powell seemed open to, though not enthusiastic, about a potential meeting with Trump. Fed chairs have met with presidents in the past, he added.

One of the principal goals of Powell's appearance was to continue to reassure markets that the Fed would not act rashly when raising rates and to communicate that the central bankers are closely monitoring the economy and markets.

While there is wide agreement that the United States economy will grow more slowly than the roughly 3 per cent rate of 2018, there's a lot of debate about how fast the slowdown will be.

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