Fed: Slowed Growth May Halt Any More Rate Hikes

Fed: Slowed Growth May Halt Any More Rate Hikes

Last month when the Fed adopted a new “patient” approach to monetary policy, it gave no specific guidance about how long its policy pause would last, or how many more interest-rate increases were ahead.

Last week disappointing US retail sales and industrial production data raised the prospect that the US economy is slowing faster than expected, and 3 Fed policymakers answered: 1 rate hike, or perhaps none.

It is not clear how widely those views are shared among all 17 Fed policymakers. Several other policymakers speaking last week were careful not to say how long they expected their own patience on rates to last.

The 1st look at their views will come in March, when the FOMC releases forecasts for the economy and rates.

But the projections delivered last week for 1 rate hike this year from both Atlanta Federal Reserve Bank President Raphael Bostic and Philadelphia Fed President Patrick Harker; and for perhaps none at all, from San Francisco Fed President Mary Daly does suggest that several see little need to brake the economy now..

If that view is widely held, the Fed’s March forecasts could show a suddenly flatter path for interest rates that better matches its new ‘patient’ policy.

“If the economy evolves as I just said I expect it to – 2% growth, 1.9% inflation, no sense that price pressures are going up, no sense that we have any acceleration then I think the case for a rate increase isn’t there” this year, Mrs. Daly said an interview.

Though a rate increase could, she said, be appropriate if the economy or inflation unexpectedly surges, “I have moved down from having a penciled-in number to having a very patient outlook” on rates, she said.

Mr. Bostic, for his part, repeated riday that he is in no rush to raise rates. So far, he said, “our outlook for 2019 is still above trend,” at around 2.3 to 2.5%, slower than last year but still above his view of the economy’s underlying potential.

Fed officials have said they expect economic growth in Y 2019 to be less than it was in Y 2018, when it was propped up by government spending and tax cuts whose impact the central bank expects to wane.

In recent months the expectation of how fast and deep that slowdown might become has been clouded by slower-than- anticipated growth overseas, and financial market turbulence in the United States that can to some degree spill over into how consumers spend and businesses invest and hire.

Fed Governor Lael Brainard Thursday flagged those increasing “downside” risks, and said she is comfortable waiting to see how they play out before changing rate policy.

A weak retail sales report for December released this week was followed on Friday by a report showing manufacturing production posted its biggest decline in 8 months in January.

Mr. Bostic said that has not yet changed his outlook, or his expectation that the Fed will likely need to raise rates once this year.

“I do not think it represents a fundamental change in my view of the economy,” he said at a workforce development conference, but if the retail weakness continues “we have to take that on” in economic forecasts. 

Have a terrific holiday weekend.

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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