'I don't see a recession': Fed chief dismisses gloomy predictions

Jeannie Matthews
January 13, 2019

"The word "patient" is used often when the Fed's policy direction is still tightening but its next rate hike can wait for a considerable time".

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.

Investors will be looking for new clues on US interest rate policy when Federal Reserve Chairman Jerome Powell speaks before the Economic Club of Washington on Thursday afternoon.

Earlier: Jerome Powell has been moving markets - up and down - lately.

S&P Global Ratings estimated that the shutdown will trim 0.05 percent off of US GDP each week.

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".

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

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Powell on Thursday also reiterated that, separate from what happens with interest rates, the Fed would continue allowing its almost $4 trillion portfolio of bonds to shrink each month, to a level "substantially smaller" than it is now.

While growth is widely expected to slow this year from last year's roughly 3% expansion, Mr. Clarida said that the economy will likely continue expanding faster than its long-term trend in 2019.

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.

"There is no pre-set path for rates. particularly now", he said.

The Fed chair, who has been publicly criticised repeatedly by President Donald Trump in recent months, warned that if there is an "extended shutdown", it would have an impact on the economy that "would show up in the data very clearly".

Most economists say a sputtering global economy, trade disputes, higher interest rates and the fading effects of 2017 tax cuts are likely to weigh on US growth this year. If global growth slows more, "I can assure you.we can flexibly and quickly move policy, and we can do so significantly if that's appropriate", he added.

The partisan fight has forced the partial government shutdown which stretched into the 20th day and, with no end in sight, is about to make it the longest in the US history.

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