Monday, 25 March, 2019

USA official warns of recession risk if interest rates go much higher

Consumer credit outstanding US official warns of recession risk if interest rates go much higher
Laurie Berry | 11 January, 2019, 14:27

Powell's comments come amid rising uncertainty since early December, when the Fed raised its benchmark interest rate to 2.5 per cent.

But Fed Chairman Jerome Powell also sought to reassure financial markets last week, saying policymakers will be "patient" before making any further moves as they watch to see how the economy evolves and could react quickly to any changes.

Powell said that he had never met Trump before he was interviewed by the president in late 2017 for the Fed chairman's job.

In his remarks before the Economic Club of Washington, Powell described the economy as strong at the end of past year, with the lowest unemployment levels in a half-century and solid gains in wages.

Even so, US central bankers face a challenging year that's complicating their communication.

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 U.S. economy appears "solid", a slowdown in China "is a concern".

The Fed's favorite inflation gauge, the personal consumption expenditures price index, clocked in at a 1.8 percent year-over-year rate in November.

USA 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.

Police Seek DNA Where Comatose Woman Gave Birth
Police have requested DNA samples from men working at a home where a patient in a vegetative state was raped and later had a baby. The private care facility serves babies, children and young adults who are "medically fragile".

Those holdings are being reduced slowly as the securities mature, dropping by about $50 billion per month, and now stand around $4 trillion, down from a high around $4.5 trillion.

Clarida is the latest US central banker to refine the Fed's monetary message after the hawkish tone of their December 19 statement and forecasts for further rate hikes in 2019 roiled financial markets.

Since the meeting, Fed officials have indicated they're less inclined to keep raising than their statement and projections for hikes in 2019 had suggested.

The balance sheet "will be substantially smaller than it is now", though bigger than it was before the crisis, Powell said.

At the same time, Powell acknowledged that financial markets are expressing concern about risks.

Still, Powell's comments and those of other officials "are developing a new narrative".

In a speech Wednesday, Charles Evans, president of the Fed's Chicago regional bank, said that modest inflation allowed the Fed to "wait and carefully take stock of the incoming data and other developments" before deciding on future rate hikes.

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