US Economy Cools, Fed’s Powell Hints a Rate Halt in 2019
Fed Chairman Jerome Powell has laid out a scenario for a pause in the central bank’s interest-rate hiking campaign sometime next year by highlighting potential headwinds cooling the US economy.
Wednesday, Chairman Powell listed 3 possible challenges to growth in Y 2019, they are;
- Slowing demand abroad
- Fading fiscal stimulus at home and
- Lagged economic impact of the Fed’s past rate increases.
“These are things we are well aware of,’’ Chairman Powell said in an appearance at the Dallas Fed.
The Fed is widely expected to raise rates for the 4th time this year in December.
His comments about possible drags on growth in Y 2019 raise questions about how many times the Fed will boost rates next year. The median forecast of policy makers in September was for 3 increases of a 1/4 point each in Y 2019.
That masks a divergence of views, with 12 of the policy makers evenly split among 2, 3 or 4 hikes. Federal Open Market Committee (FOMC) members will update their rate and economic forecasts at their 18-19 December meeting.
It appears that Chairman Powell is not really sold on overshooting Neutral.
Chairman Powell and his colleagues are counting on well-anchored inflation expectations to help keep price rises in check. If consumers and companies believe inflation will be contained, they will act in ways that will help bring that about.
A number of FOMC members have said they would be willing to countenance inflation rising a bit above their 2% target after years at which it almost consistently ran below it.
Some Fed officials, including Chairman Powell’s board colleagues Randal Quarles and Richard Clarida, have voiced hopes that productivity growth will strengthen, allowing the economy to expand more rapidly than otherwise on a sustained basis without generating inflationary pressure.
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