Federal Reserve says it 'can afford to be patient' on rate hikes

Dow Jones Industrial Average Last 5 Days Source TradingView

Dow Jones Industrial Average Last 5 Days Source TradingView

After months of tumult in the stock market and rising speculation over a coming recession, presidents of four of the 12 Fed regional banks said they wanted greater clarity on the state of the economy before extending the central bank's rate hike campaign any further. Evans is a voter this year on the rate-setting Federal Open Market Committee.

During their December meeting, Federal Reserve officials largely approved of a dovish approach to interest rate hikes in 2019, agreeing to a "limited amount" of tightening of monetary policy in the midst of uncertainties about global growth.

But Fed Chairman Jerome Powell also sought to reassure financial markets last week, saying policymakers will be "patient" before making any further moves as they watch to see how the economy evolves and could react quickly to any changes. The Fed understands "cross currents in the global economy and will be flexible and patient in implementing monetary policy". But many private economists think the central bank may end up raising rates just once this year if the economy slows significantly. Neither is an FOMC voters this year.

At the same meeting, policymakers at the USA central bank voted to raise the benchmark federal funds rate for the fourth and final time in 2018, but signaled a slower pace of gradual hikes this year, expecting to hit neutral by the end of 2019.

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Bullard has been arguing, mostly unsuccessfully, for the Fed to hold off on rate increases because inflation isn't posing a risk of accelerating much beyond officials' 2 percent target.

The S&P 500 index of US stocks has fallen 12 percent since a September peak. Policy makers are trying to balance headwinds from tighter financial conditions, slower growth overseas and softness in some parts of the USA economy, against a strong US labor market and robust consumer spending.

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

Rosengren also said he believed the view of the USA economy reflected in financial markets would ultimately prove overly pessimistic.

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