Fed's Powell says US expansion is 'sustainable'

Cornelia Mascio
Ottobre 9, 2019

But he didn't commit to such a move, adding that cuts in July and September had supported the outlook for the economy.

The Fed raised its benchmark short-term rate four times previous year, ending at a range of 2.25% to 2.5%.

The Fed announced last week that it will extend through October the ad hoc liquidity lifeline that it has been offering to US funding markets since then. The fact that it will begin growing again should not be read as an effort to stimulate the economy, Powell said, but rather to meet the public's demand for cash, bank demand for reserves and to carry out other core Fed functions.

The Fed responded by conducting temporary open market operations, which Powell said kept the federal funds rate in the target range and alleviated money market strains more generally.

Money markets were roiled last month as a combination of corporate tax payments and the settlement of Treasury debt purchases temporarily sent short-term interest rates skyrocketing.

To try to prevent that from recurring, Powell said the Fed is considering buying Treasury bills. As a result, a crucial liability on the balance sheet - bank deposits held at the Fed, called reserves - have continued declining, and in recent weeks, stresses in very-short term funding markets suggested banks have grown reluctant to lend out of those reserves.

Markets have been waiting for the Fed to decide what permanent policies it might put in place to avoid the sort of disruption that occurred recently, when reserve shortages pushed the target federal funds rate to the top of the range set by the central bank - a situation that could disrupt the Fed's goals for monetary policy if it became a regular feature of financial markets.

Market analysts applauded Mr. Powell's announcement, which they said helped clarify ambiguity around the Fed's mid- and long-range plans.

During the Great Recession and its aftermath, the Fed bought more than $1 trillion in Treasury and mortgage bonds to try to lower longer-term loan rates to encourage more borrowing and spending.

The Fed chief stressed that the growth of the Fed's balance sheet for reserve management purposes should not be confused with the large-scale asset purchase programs deployed after the financial crisis.

In this case, Powell stressed that unlike QE, the forthcoming purchases aren't meant to stimulate the economy.

In his remarks Tuesday, Powell did not directly address the Fed's next steps on interest rates.

A jump in gas prices probably can be absorbed and likely would have little overall impact, he said.

As Powell has stated before the USA economic outlook is favorable, but there are risks to that outlook, mostly from global developments.

"We will be data dependent, assessing the outlook and risks to the outlook on a meeting-by-meeting basis", he said.

On monetary policy more broadly, Powell stuck to his recent script: He and his fellow policymakers view the economy as being strong but susceptible to shocks, particularly from a global slowdown, trade and geopolitics like a potentially messy Brexit.

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