Fed chair is ‘very worried’ about ballooning debt U.S. will inevitably face

Ivan Schwartz
January 11, 2019

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".

In contrast, his remarks in his three previous appearances since late November moved stocks an average of 2.4 per cent in either direction, and his comments last Friday spurred the largest market reaction yet to any of his 17 public appearances since taking office last February.

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

He also downplayed December predictions from Fed policymakers showing that, at the median, interest rates would be raised twice this year.

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.

"Growth prospects in other economies around the world have moderated somewhat in recent months, and overall financial conditions have tightened materially, " he said in the text of a speech late Thursday in NY.

Even so, USA central bankers face a challenging year that's complicating their communication. Bloomberg's financial conditions index has retraced much of its December tightening.

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Still, Powell's comments and those of other officials "are developing a new narrative".

The U.S. central bank raised rates four times past year in the face of robust economic growth and unemployment that touched its lowest level in half a century.

He agreed with the prevailing view of the USA economy slowing to around 2.25-2.5 per cent this year, with unemployment holding around the current 3.9 per cent.

"Financial markets are expressing a view of concern about downside risks associated with global growth and with trade", Powell said.

In a speech Wednesday, Charles Evans, president of the Fed's Chicago regional bank, said that modest inflation allowed the Fed to "wait and carefully take stock of the incoming data and other developments" before deciding on future rate hikes.

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.

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".

Other reports by GizPress

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