This week the Fed chairman, Jerome Powell addressed congress. One topic that was discussed is the Fed's decision to stop interest rates hikes and wait for more data. Powell stated he believed this is the correct move because of recent slow down in global growth and turbulence in financial markets. Rates are near what the Fed would consider neutral, so he thinks it is smart to wait for more data to confirm the economies strength before raising rates further. The fed will be patient with any policy changes. The overall economy appears to be healthy but it is facing headwinds from abroad, which is why it is important for the fed to be patient.
The Fed also is discussing ending the shrinking of its balance sheet through QT. They have indicated that they are close to being finished. The Feds goal is to only have treasury's left on its balance sheet.
Powell also discusses how unemployment is not as low as the Fed predicted due to higher participation rates. this is an overall good sign and signals the economy has more room to grow. However, this also means that the baby boomers are working later into their lives most likely due to them having not been able to save for retirement.
Powell also touched on the current level of debt for the US government. He believes that the Gov needs to be more fiscally responsible and better manage its debt level. The current path is unsustainable and the government needs to make changes to balance the debt. I agree with Powell here and think the country needs to work to balance the budget. This can be accomplished through raising taxes or cutting spending. I believe some combination of both is the best solution
https://www.wsj.com/articles/jerome-powell-affirms-feds-patient-approach-to-future-interest-rate-changes-11551192300
3 comments:
Jack, great article. It's very interesting because in my article President Trump has given the Fed some heat saying their policy has not been great. Although, from the standpoint of a Finance-Econ student at OWU, Powell's idea to wait until more data comes out seems to be extremely responsible. From what we have learned, the Fed can play a large role in moving the economy in the right direction and at some points have pushed over board with interest rate movements. As the economy looked to have issues in the previous couple months, consumer confidence is back on track but overseas is still an issue. I think what Powell has decided here is a great move.
Jack - thanks for sharing this perspective! To echo what Antonio mentioned, I think that the federal reserve, and especially Powell, have been under intense scrutiny and subject to a lot of rhetoric by Trump. There definitely seems to be a lack of consensus about where the natural rate of the economy is - and if we are currently approaching the tipping point or if it is a ways ahead of us. After the government shutdown, where data was behind and lacking in key indicators, I think it is wise for them to be cognizant of this situation and wait for more information to be available before really putting the breaks on the economy. Curious to whether there will be any pushback in terms of this decision from other central banks or political arenas.
I think there is always going to be a backlash in the markets when the Fed announces that they are going to raise rates even if it is warranted. Waiting on further data is definitely responsible but I find it hard to believe that the data will suggest anything other than raising rates. Relatively speaking rates are high right now compared to previous years. With a broader perspective, they are still low and which may be problematic for any serious recession or correction.
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