Fed's Powell states that we should not rush up rate hikes, but that the economy is slowing

WASHINGTON (Reuters) – The US Federal Reserve is "in no hurry to rule" on further changes in interest rates, Fed Chairman Jerome Powell told US lawmakers on Tuesday. by describing the central bank's approach to a slowing economy.

After two hours of testimony before the Senate Banking Committee, Powell explained the "mixed signals" that the Fed had been trying to decipher in recent weeks, including disappointing data on retail sales and other aspects of the market. the economy, contrasting with the maintenance of hirings, wage growth, and the current low unemployment rate.

"The basic outlook is good," said Powell, but the slowdown in growth abroad is weighing on the US economy and "we may feel more" in the coming months.

"We have good prospects and our (pricing) committee really monitors the cross currents, the risks, and for now, we will be patient with our policy and let it take time to clarify."

Powell's comments somehow materialized a Fed policy shift last month, in which it said it would suspend a three-year rate hike cycle, which is expected to last until 2020, until the dynamics of inflation or growth change.

The flow of new workers into the labor market, for example, has surprised the central bank and means "there is more room for growth," said Powell.

Powell, who has led the Fed for just over a year, has virtually faced no opposition from Republicans sitting in the Senate, as former Fed chief Janet Yellen has indicated that the central bank was courting inflation or financial risks by leaving rates too low. .

After raising rates four times in 2018 and anticipating further increases in 2019, the Fed adopted a "patient" attitude in January in the face of growing concern over concerns over the global economy and the global economy. doubts expressed by the markets about the US economic recovery.

The Fed's overnight benchmark rate is currently in the range of 2.25% to 2.50%.

In addition, lawmakers have not said much about the Fed's plan to maintain a balance sheet of about $ 3.5 trillion, less than the current $ 4 trillion, but still huge in terms of historical norms. Republican lawmakers have generally pushed the central bank to reduce its financial footprint inflated by crisis programs, considered by many to be risky.

Powell's testimony, which was the first of its two hearings this week in Congress, did little to disrupt the financial markets. He is due to appear before the Financial Services Committee of the House of Representatives on Wednesday.

US Treasury yields were lower in the afternoon, while major US stock indexes were slightly higher. The dollar was weaker against a basket of currencies.

POLITICAL SHIFT

Powell told lawmakers that the Fed was expecting solid growth in the US economy, but at a slower pace this year than estimated growth of 3% for 2018, an integrated perspective to the statement of general policy of the central bank in January.

The "patient" approach to rate hikes has been at the heart of Fed comments since the beginning of last month.

"As long as we have steady growth without inflation, this should keep the Fed at bay," said Jack Ablin, Cresset Wealth Advisors' investment manager in Chicago.

Tuesday's hearing, however, provided insight into the problems that the central bank could face as the 2020 presidential campaign looms, and Democrats use their newly acquired control of the House to promote new economic and political ideas.

In a growing debate over whether the US government could have much more leeway to increase its debt than the conventional economy could recommend, or whether the Fed's balance sheet could help fund a "Green" New Deal "of economic and environmental programs, Powell said was among the traditionalists.

"The idea that deficits are not important for countries that can borrow in their own currency is, I think, simply wrong. I think US debt is quite high as a level (gross domestic product) and, more importantly, it is growing faster than GDP, "Powell said. "To the extent that people talk about the Fed, our role is not to support particular policies" on environmental, social or other issues.

Asked about the imminent need to raise the US debt ceiling, he said he was considering the possibility that the US government is failing "a brilliant line, and I hope we will never go over it."

Powell's appearances on Capitol Hill this week, as part of her semiannual testimony to Congress, are the first for her since the Democrats won control of the House in the November elections. They are also following the launch of several 2020 presidential campaigns.

Along with issues ranging from rural poverty sources to the effects of climate change on banks, Senate committee members have pointed to issues that may be part of the primary democratic battle.

"The Fed is working for the big wealthy banks that want to become bigger and richer," said Senator Elizabeth Warren, a Massachusetts Democrat running for president. She wondered if Powell would look aggressively at a proposed megger between US regional lender BB & T Corp and rival SunTrust Banks Inc.

Powell promised an "open and transparent" review of the agreement.

When asked if there had been any "direct or indirect" communication from the White House on interest rates, Powell deferred, saying that "there is no such thing as". he would not comment on private conversations with other officials.

President Donald Trump has criticized the Fed for raising rates, saying the monetary tightening is jeopardizing his government's efforts to spur economic growth.

Powell reiterated Tuesday its commitment that the Fed would make its decisions "in a way that is not political".