Powell repeats pledge to remain 'patient' with rate hikes

Consumer credit outstanding

The speech reinforces comments by other policy makers this month that the Fed is likely to keep interest rates on hold through at least March following four hikes in 2018.

"We have the ability to be patient and watch patiently and carefully as we see the economy evolve and figure out which of these two narratives is going to be the story of 2019", Powell said.

Fed policy makers projected above-trend economic growth for this year in their December forecasts, and they expect the unemployment rate to fall further.

Powell said that he had never met Trump before he was interviewed by the president in late 2017 for the Fed chairman's job. The principal worry is global growth, he said in questioning by David Rubenstein, the co-founder of private-equity firm Carlyle Group, where Powell was previously a partner.

US Federal Reserve Board Chairman Jerome Powell participates in a luncheon discussion hosted by the Economic Club in Washington, US, Jan. 10, 2019. "The U.S. economy is solid".

Powell on Thursday also reiterated that, separate from what happens with interest rates, the Fed would continue allowing its almost US$4 trillion portfolio of bonds to shrink each month, to a level "substantially smaller" than it is now. Bloomberg's financial conditions index has retraced much of its December tightening.

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Part of that message is meant to downplay the significance of the policy projections that officials issue every three months.

"If we find that the ongoing program of balance sheet normalization or any other aspect of normalization no longer promotes the achievement of our dual-mandate goals, we will not hesitate to make changes, " Clarida said. The Fed has projected two more rate hikes, but Powell is now signaling the Fed will be "patient" on any further hikes. "That was conditional on a very strong outlook for 2019, an outlook that may still happen".

The prospect of rising interest rates that could slow the economy spooked investors and contributed to the downturn in United States and global stock markets late a year ago.

He agreed with the prevailing view of the U.S. economy slowing to around 2.25-2.5 per cent this year, with unemployment holding around the current 3.9 per cent. If global growth slows more, "I can assure you. we can flexibly and quickly move policy, and we can do so significantly if that's appropriate", he added.

The Fed chief was also asked about the partial US government shutdown.

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

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