Federal Reserve chairman Colin Powell reiterated his recent message that there could be more room for the labor market to run, and that other “cross-flow” was leading the Fed to adopt a “patient” approach to policy.Powell noted that the Committee was in favour of closing the balance sheet statement later this year.
After noting the strong economic growth of the 2018, Powell reiterated once again that inflationary pressures and economic and financial pressures are now guiding the economic and financial sectors to adopt a “patient” approach to policy changes.He mentioned that the Federal Open Market Committee expected economic growth to “slow” and noted that slowing global growth was a key risk at the moment, particularly in China and Europe.In response to a question about trade policy, Powell said that “uncertainty is the enemy of Business”, which currently has little impact on market confidence and economic activity.
Powell has adopted a more pigeon attitude on the labor market and inflation to support the Fed’s patient policy prospects.He noted that the growth in labour participation rates over the past year had been “receptive” and that those increases showed a bit of weakness.However, he said it was uncertain whether there would be further growth he noted that the U.S. labor force participation rate still lags behind that of other advanced economies, but that gap is unlikely to reflect cyclical factors.Powell mentioned that wage growth was just over 3% and that wage increases had no impact on inflation.
On the balance sheet, Powell noted that the Committee had “broad support” for ending the balance sheet shrinkage later this year.He mentioned that the public’s “reasonable estimate” of bank reserve demand was about $1 billion plus additional buffers.
In response to a question about possible changes in the monetary policy framework, Powell said the agency was trying to make the 2% target “highly credible,” with inflation averaging around 2%, rather than averaging 2% per cent during the boom, and then averaging well below economic downturns.This suggests that potential support for the average inflation target framework is feasible.He stressed that inflation expectations were the most important driver of inflation.Powell said the Fed’s policy framework still needs to be carefully considered this year and beyond, and stressed that no decision has been taken.
In general, we are convinced that his comments have a significant impact on short-term policy, that the Fed’s “patient” policy means that monetary tightening will be suspended and that the Fed will be more cautious about the economy.
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