Fed not moving off sidelines unless inflation heats up and stays there, Powell emphasizes – By Patti Domm (CNBC) / Dec 11 2019
- Fed Chairman Jerome Powell said the Fed would like to see a move in inflation that is significant and persistent before it raises interest rates again.
- The Fed held rates steady and signaled it was on hold with no intention now of moving off the sidelines, unless there is a surprise change in the outlook.
- The developments in trade talks in the next several days, with the Dec. 15 tariff deadline looming, could be an event that could change the Fed’s position, if it alters the outlook for the economy.
- Powell said the Fed does not respond to headlines on trade developments.
Federal Reserve Chairman Jerome Powell made it clear the central bank will not move on interest rates unless it sees a significant and persistent move in inflation, which has been stubbornly below the Fed’s target.
Markets took Powell’s comments as dovish, meaning the Fed is leaning toward an easing policy and keeping interest rates low rather than a tightening policy, or raising interest rates. Stocks were slightly higher and Treasury yields were slightly lower. The Dow ended the day with a gain of 29 points, at 27,911.
The Fed left the fed funds rate range unchanged Wednesday at 1.50% to 1.75%. Both Powell’s comments and Fed’s statement indicated the Fed intends to remain sidelined for now, unless there’s a development to change the economic outlook or a move in inflation.
“They want to be viewed as being in neutral. And in fact, he made it clear he thinks they’re probably not really in neutral. They’re still accomodative,” said Ward McCarthy, chief financial economist at Jefferies. “The take away from that is the probability they’re going to make any changes in policy for at least six months is very low, and it would take something quite significant for that to happen.”
Economists say the outcome in trade talks between the U.S. and China could ultimately influence the Fed. They say it would quickly return to an easing stance if there’s a big negative in trade talks or some other event that would change the economic and financial outlook. President Donald Trump set Saturday as a deadline for new tariffs on Chinese goods, unless there is a trade deal.
“If you do get improvements on the trade side, growth will pick up, inflation will pick up and they’ll be happy to see both and they won’t try to stop it,” McCarthy said of the Fed.
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