Fed chair is ‘very worried’ about ballooning debt United States will inevitably face

Devin Lawrence
January 12, 2019

On Thursday, Fed Vice Chairman Richard Clarida said in a speech that "inflation has surprised to the downside recently, and it is not yet clear that inflation has moved back" to the central bank's goal on a sustainable basis.

"Especially with inflation low and under control, we have the ability to be patient and watch patiently and carefully as we. figure out which of these two narratives is going to be the story of 2019", Powell said at the Economic Club of Washington.

On Thursday, Powell said he hasn't seen anything to indicate that the risk of a recession is elevated.

"There is no such plan", Powell said.

"If we have an extended shutdown, I do think that would show up in the data pretty clearly", Powell stated.

While market reaction to Powell's comments was fairly muted, the S&P 500 index was down about 0.4 percent and 10-year Treasury yields hit a session high on Thursday afternoon, reflecting investors' sensitivity to any hint about how much longer the Fed will continue to pare its roughly $4-trillion portfolio of bonds.

Powell said that he had never met Trump before he was interviewed by the president in late 2017 for the Fed chairman's job.

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His comments and remarks this week by other Fed officials have all suggested the central bank is prepared to pause its string of rate hikes at the beginning of this year to assess the impact of the Fed's credit tightening. He said he didn't know the exact level.

The Fed raised rates for a fourth time in 2018 at its December meeting and signaled that it would raise rates another two times in 2019.

December figures for the Fed's preferred gauge of inflation - a separate measure related to consumption - are scheduled for release on January 31, though the report could be delayed because of the partial government shutdown. 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. Fed chairs have met with presidents in the past, he added.

Powell also noted that it's a problem that the Commerce Department is mostly shuttered, which means key economic data such as retail sales and growth in gross domestic product won't be released later this month unless the government reopens. The unemployment rate stands at 3.9 per cent and central bankers expect it to average 3.5 per cent in the final three months of this year.

Trump has urged the Fed not to raise interest rates at all this year.

That prospect has cheered markets, which had grown anxious that the Fed was not taking into account a variety of headwinds that could slow USA growth this year.

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