USA official warns of recession risk if interest rates go much higher

GS financial conditions index

GS financial conditions index

"I don't see anything that suggests the possibility of a recession in the near term is at all elevated", he said.

While those initial comments boosted stocks, they later slipped when Powell said the Fed would shed significantly more assets than it already has. Right now, the Fed doesn't see evidence of either.

In his remarks before the Economic Club of Washington, Powell described the economy as strong at the end of past year, with the lowest unemployment levels in a half-century and solid gains in wages. It would be up to the Fed to decide how to balance those worries with the signals of a strong economy.

He agreed with the prevailing view of the United States economy slowing to around 2.25-2.5 per cent this year, with unemployment holding around the current 3.9 per cent. "There is no such plan", Powell said.

"It'll be substantially smaller than it is now. but nowhere near where it was before", Powell said of the balance sheet, which began shrinking in October 2017.

Stocks turned negative after the comments, with the Dow recently down about 35 points.

But he noted that the economic data would also be muddied because the shutdown is impacting the Commerce Department, which operates the Bureau of Economic Analysis and the Census Bureau. "The question would be how much does that affect us".

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"We do not take political factors into consideration in our discussions or decisions at all".

While he has near weekly meetings with Treasury Secretary Steven Mnuchin, Powell said he has not met with Trump since taking over as Fed chairman, nor does he have any meetings with the president scheduled. But major stock indexes temporarily moved into negative territory after Powell said the bank's balance sheet would be "substantially smaller", and after he raised concerns about the size of USA debt.

One of the principal goals of Powell's appearance was to continue to reassure markets that the Fed would not act rashly when raising rates and to communicate that the central bankers are closely monitoring the economy and markets.

But the Fed said policymakers would watch for incoming data to see how the economy performs amid current uncertainty about trade frictions and volatility on financial markets.

"It could be a good quarter, but maybe with more cautious outlooks until we get something that comes out of the trade negotiations", said Kurt Brunner, a portfolio manager at Swarthmore Group in Philadelphia. "You should anticipate that we're going to be patient and watching, and waiting and seeing".

"Chairman Powell chose to make no news at his latest interview".

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