Fed Chief Powell Says Economy Sending 'Conflicting Signals'

Tuesday, 26 February 2019 22:16 WIB

Federal ReserveJerome Powell


Federal Reserve Chairman Jerome Powell on Tuesday said the economy has been sending "conflicting signals" that justify a "patient approach" on future changes to interest rates.

“While we view current economic conditions as healthy and the economic outlook as favorable, over the past few months we have seen some crosscurrents and conflicting signals,” Powell said in testimony prepared for delivery to the Senate Banking Committee.

The Fed chairman did not give a ringing endorsement of the economic outlook, saying only that in January “my colleagues and I generally expected” the economy to expand at a solid pace in 2019.

“In the last couple of months, some data have softened but still point to spending gains this quarter,” he noted.

At the Fed’s last interest-rate committee meeting, Powell and his colleagues decided they will be patient about further interest rate hikes. For economists, this generally means no tightening at least until much later this year.

The market has actually priced in a small chance of an interest-rate cut by December.

Minutes of the Fed’s January meeting show two camps among top officials, with some saying they expected to raise interest rates if the economy remains healthy and the outlook favorable, while others noting it would take some sign of higher inflation to justify further tightening.

Powell did not take sides, saying only that “going forward, our policy decisions will continue to be data dependent and will take into account new information as economic conditions.”

Powell told lawmakers that the crosscurrents and conflicting signals come in large part from financial markets.

“Financial markets became more volatile toward year-end, and financial conditions are now less supportive of growth than they were earlier last year,” he said.

In addition, “growth has slowed in some major foreign economies, particularly China and Europe,” the Fed chairman said.

“And uncertainty is elevated around several unresolved government policy issues, including Brexit and ongoing trade negotiations,” he added.

“In January, with inflation pressures muted, the FOMC determined that the cumulative effects of these developments, along with ongoing government policy uncertainty, warranted taking a patient approach with regard to future policy changes,” the Fed chairman said.

Powell said that the partial government shutdown will only have “fairly modest” negative effects on the economy.

Source : Marketwatch




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