Powell repeats pledge to remain 'patient' with rate hikes

GS financial conditions index

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

The US economy could take a clear hit from the government shutdown if it continues for a long time, Federal Reserve Chairman Jerome Powell said on Thursday (Jan 10).

"There is no such plan", Powell said.

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

Moving ahead, today's United States economic docket, highlighting the release of the latest USA consumer inflation figures, will influence the Dollars price dynamics and produce some meaningful trading opportunities later during the early North-American session.

Fed policy makers projected above-trend economic growth for this year in their December forecasts, and they expect the unemployment rate to fall further.

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

"We have the ability to be patient and watch patiently and carefully as we see the economy evolve and figure out which of these two narratives is going to be the story of 2019", Powell said. He also said he would "be patient" as the central bank determines when to hike interest rates next.

The Fed chair will be taking questions in what will be his first major comments since the central bank took a decidedly more cautious tone about its future pace of interest rate hikes.

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The monthly reductions, effectively running on autopilot, have been criticized by some as a steady tightening of financial conditions the Fed should reconsider.

Powell said, for now, there is no evidence suggesting an elevated possibility of a recession. The principal worry is global growth, he said in questioning by David Rubenstein, the co-founder of private-equity firm Carlyle Group, where Powell was previously a partner.

President Donald Trump has been a vocal critic of Powell.

He agreed with the prevailing view of the United States economy slowing to around 2.25-2.5 per cent this year, with unemployment holding around the current 3.9 per cent. The Fed has projected two more rate hikes, but Powell is now signaling the Fed will be "patient" on any further hikes.

Recessions are typically caused by inflation rising quickly and forcing the Fed to respond with high interest rates or some sort of bubble in markets.

Many business leaders remain optimistic about the USA economy this year, despite higher interest rates and large swings in the stock market.

JPMorgan Chase has estimated that the partial government shutdown - which is 20 days old Thursday - is shaving $US1.5 billion off the economy each week, a modest amount in the context of a $US20 trillion economy, the damage will keep growing.

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