Fed's Powell: Longer US government shutdown will hit economy

Fed's Powell: Longer US government shutdown will hit economy

Fed's Powell: Longer US government shutdown will hit economy

Initially, U.S. stocks fell on Powell's comments Thursday, including remarks that the Fed would continue to reduce its balance sheet to "be substantially smaller than it is now".

While most previous shutdowns have been fairly short and have not affected the economy in the aggregate, Powell said, "if we have an extended shutdown, I think that would show up in the data pretty clearly".

"If we find that the ongoing programme of balance sheet normalisation or any other aspect of normalisation no longer promotes the achievement of our dual-mandate goals, we will not hesitate to make changes, " Clarida said.

While the central bank last month penciled in two interest-rate hikes in 2019 following four in 2018, officials are now signaling a potential pause through March or longer amid headwinds from trade, the USA government's partial shutdown and global growth risks.

Since the meeting, Fed officials have indicated they're less inclined to keep raising than their statement and projections for two hikes in 2019 had suggested.

Speaking to an audience in Washington, D.C, Powell delivered the same reassuring message that bolstered markets last Friday.

At the Economic Club of Washington, Powell reiterated the views of other policymakers that the Fed would be patient about interest rate hikes.

The more flexible approach, apparent in the minutes and in recent speeches, has supported stock prices.

With no sign of excessive inflation or outsized risk in financial markets, Powell said the Fed would be "waiting and watching" in coming months. Bloomberg's financial conditions index has retraced much of its December tightening.

"The principle worry I would have is global growth", Powell said.

The partial government shutdown is unlikely to leave a mark on the economy in the short term, though the Fed will have a less clear picture of growth without data from the Commerce Department, which releases figures including retail sales and gross domestic product. Fed chairs have met with presidents in the past, he added.

A key measure of USA 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.

The us Central Bank, the Federal Reserve has pressed the pause button.

He agreed with the prevailing view of the USA economy slowing to around 2.25-2.5 per cent this year, with unemployment holding around the current 3.9 per cent.

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