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BCN-06
US-BANK-RATE
Fed’s Powell says must balance raising rates too much vs not enough
WASHINGTON, Nov 15, 2018 (BSS/AFP) – The US central bank is aiming to
prolong the economic expansion but must balance the risk of raising interest
rates too much or not enough, Federal Reserve Chairman Jerome Powell said
Wednesday.
Amid increasing concerns in financial markets that the Fed will have to
become more aggressive to head off inflation, Powell likened the job to
walking in a dark room full of furniture.
In a discussion about the economy with Dallas Federal Reserve Bank
President Robert Kaplan, Powell said the central bank is trying to steer
between two common errors.
Holding the benchmark lending rate too low for too long could allow
inflation to gain a foothold, he cautioned.
But the “other mistake — and we had plenty of advice to do this — is to
raise rates too soon, and prematurely terminate an expansion. We haven’t done
that,” Powell said.
However, “We’re at a point now where we have to take both of those risks
very seriously, and that’s why we’ve been raising rates quite gradually.”
Economists almost unanimously expect the fourth rate increase of the year
in December, but with a recent report showing wages finally beginning to
rise, they are watching for indications about the likely pace of moves in
2019.
The Fed has repeatedly said it is likely to continue to raise rates
gradually, with inflation holding right around its two percent target despite
very low unemployment and continued job gains.
But Powell stressed that officials have not made the decision yet and will
watch incoming data.
Likening the policymaking to “walking through a room full of furniture and
the lights go off,” Powell asked, “What do you do? You slow down, you stop
probably and feel your way. It’s not different with policy.”
The Fed chief also noted that the global economic outlook is slightly less
optimistic this year. There have been “growing signs of bit of a slowdown,
and it is concerning,” he said.
Asked about the impact of President Donald Trump’s aggressive trade
policies on the economy, Powell said while officials hear complaints from
businesses, the effect of higher tariffs have not yet showed up in lower
growth or higher inflation.
“We’re very pleased about state of the economy right now,” he said.
“If you look down the road you see challenges ahead” and “we have to be
thinking about how much further to raise rates and the pace at which we will
raise rates.”
Starting in December, Powell will hold a press conference after every
policy meeting, rather than just four times a year, which he said means
markets will have to get used to the possibility a rate move could come at
any time.
BSS/AFP/HR/0930