Monday , March 1 2021

Bold Tracking World Growth Worries, President Powell says

DALLAS Federal Reserve, Chairman Jerome Powell, said the central bank carefully monitored a modest deceleration in global growth, whose strength last year had given a significant turnaround for the US economy.

"This year we've seen a gradual chipping away on that picture. You've seen a bit of a slowdown – not a terrible slowdown," said Powell on Wednesday night. "You still see solid growth, but you're seeing growing signs of a slowdown." And that's about. "

Global growth prospects were one of a number of challenges that Powell flagged. He did not say that any of them was strong or surprising enough right now to change the current political path of BP to gradually raise prices, and he said he is still optimistic about the US economy.

"I am very pleased with the state of the economy now," he said. "Our policy is part of the reason our economy is in such a good place right now."

While he did not say that one of them was strong or surprising enough right now to change Fed's current political path to gradually lift the pace, the focus was remarkable, as such risks have not been as prominent in Powell's other public comments since he became president in February .

There is a risk that US economic growth may slow down in the next few years, as the latest fiscal stimulus from tax cuts and spending haltes, Powell said during a moderated discussion in Dallas Fed with the Reserve Bank President Robert Kaplan.

A separate challenge is that US growth continues to exceed the rest of the world and put pressure on some emerging market economies to face major winds from a stronger dollar.

"The US economy is only really strong, and it is stronger than many other major economies right now," he said.

While Mr. Powell acknowledged the latest stock market, the sales tax could affect the economic conditions that slow down growth, but he did not suggest it had been enough for the Fed to change its policy plans.

Market conditions are "one of many factors" that the Fed considers when deciding where to determine the interest rates, he said.

Officials voted unanimously in September to raise their benchmarks to a range between 2% and 2.25%, and they were held fast at the meeting last week. After the meeting, officials offered a most positive assessment of the US economy, indicating that another interest rate increase is likely at its meeting next month.

In September, Fed officials picked up plans to raise their benchmark short-term perspective once a year. Officials were divided if they would be raised two, three or four times next year. It would drive the rate close to 3%, which is where most officials expect them to settle in the long term – a so-called neutral tax rate that does not track or slow down growth.

Mr Powell said Wednesday's biggest challenge to Fed now is to consider how much longer and at what rate to raise prices. He said that the central bank would evaluate "very carefully … how markets and the economy and business contacts react to our policies".

Investors watched Mr Powell's remarks carefully Wednesday after comments he made at his latest public appearanceOn October 3, some investors led to believe that the Fed could raise interest rates beyond what they had expected. This led to concern that the Fed could raise prices too much, which led to a recession.

Last month, Mr. Powell down the debate about whether the Fed would raise prices over neutral and say that worry was too early. The prices are "far from neutral at this time, probably," he said during a moderated discussion in Washington. "We need the interest rate gradually, very gradually, moving back towards normal."

These comments came in the middle of a series of strong US economic data. Together, they increased investors' expectations that Fed favored more interest rate hikes next year. The return on the benchmark 10-year government debt affected short seven years high in early October. Bond yields increase as prices drop.

Although the contents of Mr. Powell's October commentary largely reflected many official officials' public forecasts, some commentators said that his tone reflected greater conviction of raising prices, which contributed to the bond market. Rising bond yields, in turn, sent the stock market on a game trip last month.

At the same time unemployment was 3.7% in October, a low and average hourly wage of almost half a century increased 3.1% from the year before, the biggest annual increase since 2009.

Most Fed officials subscribe for a certain version of a framework that involves wages and prices should rise when unemployment drops below a so-called natural level consistent with stable inflation. Officials, including Mr Powell, have been careful to note that this ratio is weaker than it used to be and that their estimates of natural unemployment may be inaccurate.

Inflation will be central to determining how Fed's policy path is developing. Inflation has kept close to Fed's 2% target for most of this year after having undergone it for many years. Fed shows inflation around 2% as a sign of balanced supply and demand.

Mr Powell said Wednesday he was optimistic, the US economy could hold a higher rate of growth, which could possibly enable faster growth without a high inflation rate. "You always want to be on the optimistic side of this economy," he said.

When asked about President Trump's recent criticism of Fed raises, Mr. Powell any escalation. In an interview with the Wall Street Journal last month, Mr. Trump Fed quoted as the biggest risk to the economy. He described former Fed as crazy and out of control because of his plans to gradually raise prices despite some clear signs of inflation.

"We have protection against political commitment," said Mr. Powell, referring to legal safeguards that prevent Fed's decision from being reversed by the executive branch. Mr. Powell did not mention Mr. Trump by name.

Mr. Powell also defended the principle of monetary policy independence for central banks, referring to the importance of credibly monitoring inflation by being free from politics.

"It makes it possible for us to better serve the public," he said. "Central banks, when they come too close to the government, change incentives."

Write to Nick Timiraos at [email protected]

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