Fed Blamed 'Trade Tensions' for Market Sell-Off, Missed Its Own Role

Fed Blamed 'Trade Tensions' for Market Sell-Off, Missed Its Own Role

United States central bankers on Wednesday seemed in lock-step in their desire to reassure financial markets that, for now, they will hold off on raising interest rates any further.

Powell also repeated his comments that attacks by President Donald Trump on the Fed's rate hike policies were not having an impact on Fed decisions, which he said were aimed at achieving the Fed's two goals of maximum employment and stable prices. "You should anticipate that we're going to be patient and watching, and waiting and seeing".

"The long-run fiscal, nonsustainability of the USA federal government isn't really something that plays into the medium term that is relevant for our policy decisions", Powell continued. "We wanted to have the balance sheet return to a more normal level, which is a level no larger than it needs to be for us to conduct monetary policy", he said.

Starting after the January 30 announcement, Powell will hold a press conference after every meeting, rather than just four times a year, giving him many more opportunities to try to communicate with financial markets.

According to minutes of the Fed's December gathering released Wednesday, officials believed that with inflation still muted, the central bank could afford to be "patient" about future rate hikes. Statements of its President, Jerome Powell and his colleagues make it clear that the next interest rate move is in the offing in the near term.

"Similarly, Trump also softened his stance on China after sharp falls in stock prices".

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Speaking to an audience in Washington, Powell delivered the same reassuring message of restraint and flexibility that bolstered markets last Friday.

The monthly reductions, effectively running on autopilot, have been criticized by some as a steady tightening of financial conditions the Fed should reconsider.

"No one knows whether this year will be like 2016", said Powell.

"The principle worry I would have is global growth", Powell said. Fed chairs have met with presidents in the past, he added. "But what I do know is that we will be prepared to adjust policy quickly and flexibly and to use all of our tools to support the economy should that be appropriate to keep the expansion on track, to keep the labor market strong and to keep inflation near 2 percent". The unemployment rate stands at 3.9 per cent and central bankers expect it to average 3.5 per cent in the final three months of this year.

The central bank's quarterly forecast in December showed Fed officials still expected two more increases in 2019.

"Policy is likely on pause for a while and will be highly influenced by the economic data and evolution of key risks, notably those affecting financial markets and global growth", said Sal Guatieri, senior economist at BMO Capital Markets.

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