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

Marcus Newton
January 13, 2019

A key measure of US inflation was little changed in December while falling energy prices dragged down the broader gauge, giving the Federal Reserve little urgency to raise interest rates soon as it signals a more cautious approach in 2019.

US 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.

In the past week, Chairman Jerome Powell and other officials have stressed that the central bank will be patient and flexible in responding to economic data, including the potential effects of the trade war.

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

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

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

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The us Central Bank, the Federal Reserve has pressed the pause button. Big picture: "they don't have that much further to go and they don't have to go there fast", said Robert Tipp, chief investment strategist with PGIM Fixed Income in Newark, New Jersey. The latest forecasts issued in December suggested rates could rise by a median of two more times in 2019, but Powell said it was a mistake to construe that as any sort of official forecast or "plan".

Mr. Clarida said monetary policy, after four rate increases past year, isn't on "preset course".

"Notwithstanding strong economic growth and a low unemployment rate, inflation has surprised to the downside recently, and it is not yet clear that inflation has moved back to 2 per cent on a sustainable basis, " Clarida said.

Powell also anxious about the lack of key economic statistics during the government shutdown that the Fed uses to take the temperature of the economy, such as retail sales and GDP growth.

While there is wide agreement that the USA economy will grow more slowly than the roughly three percent rate of 2018, there's a lot of debate about how fast the slowdown will be.

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

Other reports by MaliBehiribAe

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