Fed chair is ‘very worried’ about ballooning debt USA will inevitably face

Gladys Abbott
January 11, 2019

The partial government shutdown is unlikely to leave a mark on the economy in the short term, though the Fed will have a less clear picture of growth without data from the Commerce Department, which releases figures including retail sales and gross domestic product.

With no sign of excessive inflation or outsized risk in financial markets, Powell said the Fed would be "waiting and watching" in coming months to see which of those two competing "narratives" plays out.

"The principle worry I would have is really global growth", Powell said, but he added: "I still think the mostly likely baseline case for China is another year of solid growth". They later rallied, with the S&P 500 Index closing about 0.5 per cent higher. He said the Fed's aim was to return the balance sheet to a "more normal level" but didn't specify what that level will be. He said he didn't know the exact level.

In that appearance Powell emphasized the Fed's flexibility and patience in evaluating data, easing expectations of steady rate hikes in a message amplified by a half dozen other Fed officials in recent days.

One of the principal goals of Powell's appearance was to continue to reassure markets that the Fed would not act rashly when raising rates and to communicate that the central bankers are closely monitoring the economy and markets.

Clarida repeated Powell's assertion earlier in the day that monetary policy was not on a preset course.

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USA central bankers are refining their message after the hawkish tone of their Dec 19 statement and forecasts for further rate hikes in 2019 roiled financial markets. The Fed's communications - and a Bloomberg News report that President Donald Trump had discussed firing Powell - helping bring on the worst December for stocks since the Great Depression.

The central bank's quarterly forecast in December showed Fed officials still expect two more increases in 2019.

The central bank's vice chairman, Richard Clarida, said later on Thursday that if the global slowdown and tightening of financial markets persists, the Fed would take policy steps to offset that.

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.

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.

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

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