Coverage: Fed chair Powell says it will be “patient”

Jerome H. Powell, the Federal Reserve chairman, reiterated Thursday that the Fed plans to evaluate the health of the economy before moving ahead with any new interest rate increases.

Binyamin Appelbaum of The New York Times had the news:

Patience is the Fed’s new watchword, and Mr. Powell used it at least four times in his remarks.

He said that 2018 was “a very good year for the economy,” and that the Fed saw signs of continued momentum in the latest economic data. Financial markets, on the other hand, have shown signs of anxiety about the economic outlook, particularly the slowing pace of international growth.

“We have the ability to be patient and watch patiently and carefully as we watch the economy evolve,” Mr. Powell said Thursday in remarks before the Economic Club of Washington, D.C.

He said the Fed would wait to see “which of these two narratives is going to be the story of 2019.”

Paul Davidson of USA Today reported that the Fed could decrease its projected two rate hikes for 2019:

“During the year, we’ll look at (the economy) and tighter financial conditions and we’ll also lower our rate path” and monitor the effects of that on the economy and markets, Powell said in an interview at the Economic Club of Washington D.C. He stressed the Fed has made no decisions about the pace of rate increases this year and will respond to the economy as it evolves, saying officials will be “flexible.”

Powell’s remarks largely echoed his assertion at a forum in Atlanta last week that the Fed “will be patient” as it weighs future rate hikes – a message that has  helped drive stocks higher. On Thursday, he appeared to more explicitly indicate that Fed policymakers could lower their rate-hike forecast if markets continue to be turbulent and the economy slows more than anticipated.

Fed policymakers’ estimate of two rate increases this year “was contingent on a really strong outlook for 2018,” Powell said. While he said that may still happen, he added, “We can be patient and wait and see what does evolve,” noting that inflation has been modest.

Thomas Franck of CNBC.com reported that Powell is worried about growing U.S. debt:

“I’m very worried about it,” Powell said at The Economic Club of Washington, D.C. “From the Fed’s standpoint, we’re really looking at a business cycle length: that’s our frame of reference. The long-run fiscal, nonsustainability of the U.S. federal government isn’t really something that plays into the medium term that is relevant for our policy decisions.”

However, “it’s a long-run issue that we definitely need to face, and ultimately, will have no choice but to face,” he added.

The Fed chief’s comments came as the annual U.S. deficit reaches new sustained highs above $1 trillion, a fact many economists worry could spell trouble for future generations. Annual deficits have topped $1 trillion before, but never during a time of sustained economic growth like now, raising concern about what would happen if a recession hits.

Total U.S. debt is about $21.9 trillion, of which $16 trillion is owed by the public. In part because of continued rate increases under Powell, the interest cost on that debt could start to become a bigger and bigger burden.