Federal Reserve Chairman Jerome Powell said the U.S. central bank can be patient before adjusting interest rates again as it waits to see how global risks impact the domestic economy.
“We’re in a place where we can be patient and flexible and wait and see what does evolve, and I think for the meantime we’re waiting and watching,” Powell said in a question-and-answer session Thursday at the Economic Club of Washington, D.C. “You should anticipate that we’re going to be patient and watching, and waiting and seeing.”
U.S. stocks turned lower after Powell said the central bank is sticking with its process of shrinking its balance sheet to a more normal level, which removes stimulus put into place to revive the economy following the financial crisis and recession a decade ago.
The balance sheet “will be substantially smaller than it is now,” though bigger than it was before the crisis, Powell said. He said he didn’t know the exact level.
Refining Message
U.S. central bankers are refining their message after the hawkish tone of their Dec. 19 statement and forecasts for further rate hikes in 2019 roiled financial markets. The Fed’s communications -- and a Bloomberg News report that President Donald Trump had discussed firing Powell -- helping bring on the worst December for stocks since the Great Depression.
Since the meeting, Fed officials have indicated they’re less inclined to keep raising than their statement and projections for two hikes in 2019 had suggested.
Powell said last week that he’s “listening sensitively to the message that markets are sending” about downside risks. Minutes of the December meeting released on Wednesday showed that many officials felt the central bank “could afford to be patient about further policy firming,” indicating the Fed could place interest rates on hold through March or longer as it waits for clarity on risks to global growth that could affect the U.S. economy.
Flexible Approach
The more flexible approach, apparent in the minutes and in recent speeches, has supported stock prices. Bloomberg’s financial conditions index has retraced much of its December tightening.