Powell Says Solid Economy Faces Headwinds as Fed Mulls Rates

Irving Hamilton
November 18, 2018

Powell said the Fed is raising rates slowly in an attempt to avoid the mistake of hiking them either so quickly that it pushes the economy into a recession, or moving too slowly and allowing inflation to get out of control.

A "really strong" US economy is likely to continue growing, but softness in housing and high levels of corporate debt have caught the Federal Reserve's eye, Chairman Jerome Powell said on Wednesday. The Fed has signaled that it expects to raise rates one more time this year and three more times in 2019.

The Federal Reserve, under pressure from a critical White House even while it largely hits its inflation and employment targets, will conduct an extensive review next year of how it guides the US economy as it seeks to become more open and accountable.

Powell also said there was a broad consensus among Fed officials that the central bank should keep raising its benchmark interest rate in the near term.

The chairman's comments highlight the growing complexity the Fed faces as it sets policy and stays on course to hike interest rates for a fourth time this year in December.

The new effort will feature a conference June 4-5 in Chicago that will feature speakers outside the system.

"We've raised interest rates to a level that it's hurting asset prices. We have now a flat yield curve", the founder of Bridgewater Associates said when appearing on CNBC's "Squawk Box" program.

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Monetary policymakers, Dalio said, are in a hard position because the economy itself, driven by the massive tax cuts in December 2017, will pressure them to raise rates "too much".

Powell, quizzed by Dallas Federal Reserve President Robert Kaplan in an hour-long conversation, was not asked directly about possible further rate increases, but said nothing to counter the expectation that the Fed will raise rates again when it meets in December.

"We have a very important job that Congress has assigned us: Serve the public", he said.

That could be happening in the next year or so, he said.

"None of these alternative frameworks are without challenges, but all are worth thorough review", Cleveland Fed President Loretta Mester said in an October speech in NY. "That's our sole focus".

"We're not just locked into policy, because that's what we did before", Atlanta Fed President Raphael Bostic said in Madrid on Thursday about alternative frameworks. We don't try to control things we don't control.

A recent report by credit rating agency Moody's anticipated that a split Congress in the wake of the midterm elections may put constraints on fiscal policy, and that "the Federal Reserve's role at assuring an adequate rate of economic growth has been magnified".

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