U.S. Markets close in 4 hrs 6 mins

Powell, Clarida insist the Fed will be 'patient' with monetary policy

Brian Cheung
Reporter

The Fed is reiterating that it will be flexible with its monetary policy in 2019.

Federal Reserve Chair Jerome Powell made remarks Thursday afternoon in Washington and insisted that the central bank would be “patient” with U.S. economic developments.

“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 become the story of 2019,” Powell said.

That commentary that was bolstered by Vice Chairman Richard Clarida in an evening speech the same day in New York City.

Clarida also deployed the word “patient,” adding that the Fed needs to keep a close eye on “muted” readings on inflation. Much like his speech in November, Clarida said Treasury Inflation-Protected Securities actually show inflation drifting “downward,” although they “remain near” 2% when adjusting for term premiums and liquidity.

“Speaking for myself, I believe we can afford to be patient about assessing how to adjust our policy stance to achieve and sustain our dual-mandate objectives,” Clarida said.

‘There is no such plan’

The message from the Fed: “data-dependency” continues to be its strategy, and that they will not commit to a predetermined amount of rate hikes.

Powell made that point clear Thursday when asked if he is committing the Fed to two rate hikes for the calendar year, to which he responded with “there is no such plan.” He added that the Fed is “waiting and watching” the data. Dot plots from the Federal Open Market Committee’s December meeting showed policymakers lowering their expectations for the amount of 2019 rate hikes, from three to two.

Richard Clarida, vice chairman of the U.S. Federal Reserve, speaks during a discussion at the Peterson Institute for International Economics in Washington, D.C., U.S., on Thursday, Oct. 25, 2018. Photographer: Andrew Harrer/Bloomberg via Getty Images

Echoing comments from his remarks in Atlanta last Friday, Powell said data appeared to support inflation “staying near our target” and a “very strong” labor market. But the data contrasts with financial markets, which Powell noted as “expressing a view of concern about downside risks,” particularly around signals of a global slowdown. He pointed to Apple slashing its quarterly revenue guidance for the first fiscal quarter of 2019 as evidence of a slowing Chinese economy.

Clarida also noted “crosswinds” to the U.S. economy from abroad, but added that the Fed could adjust its monetary policy path if global risks threatened the U.S. economy. He noted that the Fed is mindful of monetary policy operating on a lag.

“Certainly that would suggest that it would not be prudent everywhere and always to wait to see a slowdown in the U.S. before reacting,” Clarida said.

Clarida notably reinforced Powell’s recent remarks in Atlanta on the balance sheet normalization process, repeating that the Fed would “not hesitate” to make changes to its pace of asset roll-offs if economic conditions warranted it.

Clarida’s and Powell’s comments are the latest in a busy week of Fedspeak. Just Wednesday, Boston Fed President Eric Rosengren said the Fed can wait on rate hikes, which fell in line with St. Louis Fed President James Bullard’s worries that more rate hikes could trigger a recession. However, Chicago Fed President Charles Evans said he still sees three rate hikes in 2019.

All three are voting members of this year’s FOMC, showing some of the divide among the committee ahead of its first policy-setting meeting January 29-30.

Brian Cheung is a reporter covering the banking industry and the intersection of finance and policy for Yahoo Finance. You can follow him on Twitter @bcheungz.

Read more:

5 game-changing papers from this year's largest gathering of economists

Wells Fargo economist: It's time to abandon the yield curve

Fed Chair Powell communicates that monetary policy is not on autopilot

Warren turns up rhetoric against Wall Street in 2020 bid

Congress may have accidentally freed nearly all banks from the Volcker Rule