Powell Says Fed Is 'Waiting and Watching' With Patience on Rates

Consumer credit outstanding

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

US 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.

During an interview at The Economic Club of Washington, D.C., Powell said that continued shutdown stopped some of the data feed that the Fed needed, making the outlook of US economy less clear, thus complicating policy-making.

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".

At the close, Wall Street finished up for the day but it does not take much for investors to run for the exits, with markets already on edge amid concerns the global economy is slowing just as interest rates are rising and uncertainty about the US-China trade war.

Powell had roiled markets in early October when he indicated several more rate increases were likely and since then he and other senior officials have come out multiple times with more soothing comments.

Speaking to an audience in Washington, D.C, Powell delivered the same reassuring message that bolstered markets last Friday.

The more flexible approach, apparent in the minutes and in recent speeches, has supported stock prices.

On Thursday, Powell said he hasn't seen anything to indicate that the risk of a recession is elevated.

The S&P 500 is up over 10 per cent from a 20-month low it touched around Christmas, lifted by hopes for a US-Chinese trade deal, which eased some worries over the impact of the dispute on global growth.

He acknowledged lower growth expectations globally, and tighter financial conditions over the last few months.

His biggest concern is weakening growth in China and Europe, although he warned a prolonged USA government shutdown could become a drag on the economy. Rubenstein also hosts an interview show on Bloomberg Television. Fed chairs have met with presidents in the past, he added.

St. Louis Federal Reserve Bank President James Bullard speaks at a public lecture in Singapore, Oct. 8, 2018. The unemployment rate stands at 3.9 per cent and central bankers expect it to average 3.5 per cent in the final three months of this year.

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

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