Markets

Fed chair Jerome Powell to speak on market concerns Thursday

Fed chair Jerome Powell to speak on market concerns Thursday

US stocks initially turned lower after Powell said the central bank is sticking with its process of shrinking its balance sheet to a more normal level, which removes stimulus put into place to revive the economy following the financial crisis and recession a decade ago.

The S&P 500 edged up 0.45 per cent on Thursday, while yields on Treasury securities were unchanged.

Stocks turned negative after the comments, with the Dow recently down about 35 points.

As inflation shows no signs of accelerating much beyond the Fed's two per cent target, there is no urgent need to raise the benchmark lending rate further, he said.

Powell also repeated his comments that attacks by President Donald Trump on the Fed's rate hike policies were not having an impact on Fed decisions, which he said were aimed at achieving the Fed's two goals of maximum employment and stable prices.

Powell and others have been less demonstrative and noted that economic data remains strong, particularly after a recent payroll report that showed more than 300,000 jobs added in December. 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. "The U.S. economy is solid".

The monthly reductions, effectively running on autopilot, have been criticized by some as a steady tightening of financial conditions the Fed should reconsider. Traders were already wary of statements Powell made in December about rate hikes.




"There is no such plan", Powell said. "That was conditional on a very strong outlook for 2019, an outlook that may still happen".

The U.S. 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.

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.

Powell also said he didn't see signs of a recession in the near term, but noted that his "principal worry" was a slowdown in global growth and that while the United States economy appears "solid", a slowdown in China "is a concern". If global growth slows more, "I can assure you. we can flexibly and quickly move policy, and we can do so significantly if that's appropriate", he added.

The head of the Federal Reserve also warned that while his department has no official projection on the current government shutdown, it can still have a damaging effect on the national economy.

"We're in a place where we can be patient and flexible and wait and see what does evolve, and I think for the meantime we're waiting and watching", Powell said in a question-and-answer session Thursday at the Economic Club of Washington, D.C.


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