Daily Management Review

US Fed To Be Flexible And Aware Of Risks: Fed Chief Powell


US Fed To Be Flexible And Aware Of Risks: Fed Chief Powell
The US Federal Reserve Chairman Jerome Powell tried to assure concerns of investors and the markets by saying that the fed is aware of the risks in the economy and in 2019 it would get more patient and flexible in its policy decisions, even as there were concerns that the fed was not insensitive enough to the signs of an economic slowdown.
For the last few many months, there has been volatility in the world bond and stock markets and Powell appeared to choose his words carefully, intentionally avoiding any communication gaps like in the past which had increased concerns of the markets instead of soothing them. Powell also expressed his strong intention of continuing with his job despite the US president Donald Trump being very critical of him and his policies.
His most recent comments reinstated the more sympathetic tine of some of Powell’s colleagues as he said that the Fed was “listening” to markets and would create a balance in its decisions considering both the information emerging out of the strong economy and the possible of risks which include slowing global growth and worries about the U.S.-China trade war.
Following the comments, there was a 3.5 per cent rise in the major indices at Wall Street – marking a more than two-week high. Throughout December of 2018, there as an increasing concern among investors about the upbeat forecast of the fed about the economy and the markets and its intention of keeping increasing rate in 2019 which resulted in high volatility in the markets.
“Particularly with the muted inflation readings that we’ve seen coming in, we will be patient as we watch to see how the economy evolves,” Powell told the American Economic Association in Atlanta.
He said that there has been four rate hikes in 2018 by the Fed with the latest one in December and according to Fed announcements, this policy was not a preset path and the policy could be changed and tightening policy reversed as had been done in 2016 at a time when doubts were expressed about the US economy because of global growth concerns.
“We are always prepared to shift the stance of policy and to shift it significantly” if needed, Powell said, speaking on a panel alongside former Fed chiefs Janet Yellen and Ben Bernanke. He added that the flexibility applied as well to the monthly reductions to the Fed’s balance sheet.
The US economy was ion track currently, stressed the Fed chief, and added that the job market was quite strong. While not talking anything about the December forecast by the Fed about two possible rate hikes in 2019, Powell managed to deliver a tempered message that investors had been hoping for which augmented some comments from the Fed presidents who have attempted to tone down the tightening plan in recent days.
“We really need to be looking at the data and having the economy tell us, do we need to move more? Do we need to move more, faster? Can we wait?,” Cleveland Federal Reserve Bank President Loretta Mester said in an interview with Reuters. “We should take our time and assess ... We may be where we need to be.”