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Longer US government shutdown will hit economy: Federal Reserve Chief Jerome Powell

13 January 2019
Longer US government shutdown will hit economy: Federal Reserve Chief Jerome Powell

Federal Reserve Chairman Jerome Powell on Thursday stressed again that the US central bank can be patient in approving any further rate increases as officials gauge whether the USA economy will slow this year, as some in financial markets worry, or continue motoring ahead as the Fed itself expects.

During an interview at The Economic Club of Washington, D.C., Powell said that continued shutdown stopped some of the data feed that the Fed needed, making the outlook of USA economy less clear, thus complicating policy-making. He simply reiterated the message from the latest FOMC minutes that policy makers regard the economic outlook as solid, despite intensifying downside risks. He also said he would "be patient" as the central bank determines when to hike interest rates next. The shutdown, which affects about a quarter of the federal government, entered its 21st day on Friday, with still no consensus on $5.7 billion funding to build the border wall US President Donald Trump insists on.

Since the meeting, Fed officials have indicated they're less inclined to keep raising than their statement and projections for hikes in 2019 had suggested.

But Fed Chairman Jerome Powell also sought to reassure financial markets last week, saying policymakers will be "patient" before making any further moves as they watch to see how the economy evolves and could react quickly to any changes.

The more flexible approach, apparent in the minutes and in recent speeches, has supported stock prices.

"There's good momentum going into this year", Powell said during an interview at The Economic Club of Washington DC. "The principal worry is global growth", he said.

Powell also anxious about the lack of key economic statistics during the government shutdown that the Fed uses to take the temperature of the economy, such as retail sales and GDP growth.

"I'm not aware of any Fed chair turning down an invitation from the White House, nor do I think that would be appropriate", Powell said.

Even so, USA central bankers face a challenging year that's complicating their communication.

"The word "patient" is used often when the Fed's policy direction is still tightening but its next rate hike can wait for a considerable time". Those forecasts appear supported by a robust December labor-market report, which showed the economy added 312,000 non-farm jobs, the most in 10 months.

Fed officials and many forecasters expect growth to slow in 2019, but to remain strong enough to continue generating jobs and keeping the unemployment rate near its nearly 50-year low.