Fed's Powell again signals 'patient' rate hike approach, warns of crosscurrents
Federal Reserve Chair Jerome Powell said that despite a strong U.S. economy, policymakers at the U.S. central bank will be “patient” with interest rate hikes in the year ahead as he warned of emerging headwinds.
“While we view current economic conditions as healthy and the economic outlook as favorable, over the past few months we have seen some crosscurrents and conflicting signals,” Powell told the Senate Banking, Housing and Urban Affairs Committee on Tuesday.
In his semiannual testimony on the state of monetary policy, Powell noted that the Fed is closely monitoring potential crosscurrents, including the U.S.-China trade war, Brexit uncertainties and the financial markets (in December, the Dow Jones Industrial Average posted its worst month since the Great Depression) for signs of an economic slowdown.
China and Europe, he said, are particular areas of concern.
It’s not the first time that Powell has addressed concerns about weakening financial conditions and a volatile stock market -- which investors believe. In January, after its two-day meeting, the Federal Open Market Committee voted to leave the benchmark federal-funds rate unchanged, issuing a dovish outlook in the year ahead.
"We still see sustained expansion of economic activity, strong labor conditions and inflation near 2 percent," Powell said at the time. "But the crosscurrents suggest a less favorable outlook.”
However, Powell also lauded some “welcome developments,” like job creation -- the unemployment rate remained steady at 4 percent in January, while the U.S. economy added 304,000 jobs -- and signs of stronger wage growth.
In their meeting minutes, which were released last week, officials said they believed a “patient approach” to rate hikes would give them more time to assess the economic impact of the trade war, as well as the severity of a slowdown in global growth.
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Although some participants, according to the minutes, suggested that it was “not yet clear” what adjustments to interest rates will need to be made moving forward, others argued that rate increases “might prove necessary only if inflation outcomes were higher than in their baseline outlook.”
Powell will testify before the House of Representatives on Wednesday.