U.S. official warns of recession risk if interest rates go much higher

Consumer credit outstanding

Consumer credit outstanding

That prospect has cheered markets, which had grown anxious that the Fed was not taking into account a variety of headwinds that could slow USA growth this year.

Powell pointed out that the US may be more vulnerable to a slowdown in global growth because of the rise on globalized business and supply chains. He brushed off the idea that tariffs were having a bit impact on either the US economy or China's, saying trade disputes had not left a "visible mark" on the economies of either country.

Fed policy makers projected above-trend economic growth for this year in their December forecasts, and they expect the unemployment rate to fall further. He also said he would "be patient" as the central bank determines when to hike interest rates next.

"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. Big picture: "they don't have that much further to go and they don't have to go there fast", said Robert Tipp, chief investment strategist with PGIM Fixed Income in Newark, New Jersey.

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

The prospect of rising interest rates that could slow the economy spooked investors and contributed to the downturn in United States and global stock markets late a year ago.

While he has near weekly meetings with Treasury Secretary Steven Mnuchin, Powell said he has not met with Trump since taking over as Fed chairman, nor does he have any meetings with the president scheduled.

Powell's second appearance in less than a week generated a subdued response in financial markets, a sign he may have found his footing in how to describe central bank policy without surprising investors.

The US Dollar continues to be weighed down by the growing market conviction that the US central bank might slow the pace, or perhaps even pause the rate hike cycle in 2019, reinforced by the Fed Chair Jerome Powell's comments on Thursday.

Asked what qualifies for "normal", Powell said "I don't know the exact level."He noted that the balance sheet has declined to about $4 trillion, but that before the 2008 crisis it was below $1 trillion".

Fed officials and many forecasters expect growth to slow in 2019, but to remain strong enough to continue generating jobs and keeping the unemployment rate near its nearly 50-year low.

Recommended News

We are pleased to provide this opportunity to share information, experiences and observations about what's in the news.
Some of the comments may be reprinted elsewhere in the site or in the newspaper.
Thank you for taking the time to offer your thoughts.