Fed chair Jerome Powell to speak on market concerns Thursday

Dow Jones Industrial Average Last 5 Days Source TradingView

Dow Jones Industrial Average Last 5 Days Source TradingView

During a lunchtime appearance at the Economic Club of Washington, D.C., Powell sounded optimistic about the US economy but cautioned that it was unclear whether slowdowns in Asia and Europe could become a drag on the U.S.

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That prospect has cheered markets, which had grown anxious that the Fed was not taking into account a variety of headwinds that could slow US growth this year. Minutes of the December meeting released on Wednesday showed that many officials felt the central bank "could afford to be patient about further policy firming", indicating the Fed could place interest rates on hold through March or longer as it waits for clarity on risks to global growth that could affect the USA economy.

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

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

Powell's comments on Fed patience were similar to the message in the minutes of the Fed's December meeting as well as the comments of other Fed officials this week. 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".

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The balance sheet "will be substantially smaller than it is now", though bigger than it was before the crisis, Powell said. "That was conditional on a very strong outlook for 2019, an outlook that may still happen".

Since then, stock markets endured a topsy-turvy end to the year as the US government shut down and global trade tensions ratcheted higher.

While there is wide agreement that the U.S. economy will grow more slowly than the roughly 3 per cent rate of 2018, there's a lot of debate about how fast the slowdown will be.

"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 percent on a sustainable basis, " Clarida said. "The principal worry we have is global growth" in Asia, Europe and elsewhere.

JPMorgan Chase has estimated that the partial government shutdown - which is 20 days old Thursday - is shaving $US1.5 billion off the economy each week, a modest amount in the context of a $US20 trillion economy, the damage will keep growing.

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