Longer US government shutdown will hit economy, says Fed chief

Longer US government shutdown will hit economy, says Fed chief

Federal Reserve Chairman Jerome Powell said the US central bank can be patient before adjusting interest rates again as it waits to see how global risks impact the domestic economy.

Many business leaders remain optimistic about the United States economy this year, despite higher interest rates and large swings in the stock market. It would be up to the Fed to decide how to balance those worries with the signals of a strong economy.

With no sign of excessive inflation or outsized risk in financial markets, Powell said the Fed would be "waiting and watching" in coming months to see which of those two competing "narratives" plays out.

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

Speaking at the Economic Club of Washington, Powell reiterated that the United States central bank has the ability to be patient on monetary policy given stable price measures.

Powell said, for now, there is no evidence suggesting an elevated possibility of a recession. Trump tapped Powell for the post after deciding not to offer then Fed-Chairman Janet Powell a second term.

Fed policy makers projected above-trend economic growth for this year in their December forecasts, and they expect the unemployment rate to fall further.

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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.

Thursday's brief drop stood in contrast to the response to Powell's remarks last Friday, when the Dow surged 747 points after Powell said the Fed is willing to be "patient" and "flexible" about future interest rate hikes - sentiments he reiterated Thursday.

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. 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 US economy.

"There is no such plan", Powell said. He said he didn't know the exact level.

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.

"There is no pre-set path for rates. particularly now", he said.

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