Headwinds Could Hit US Economy Next Year, Cautions The US Fed

The US Federal Reserve Chairman Jerome Powell said that the central bank needs to think about the speed at which interest rates are to be raised because of some potential headwinds that are on the way to hit the US economy even though he sounded mostly optimistic about the current state of the U.S. economy and its continued strong performance.

Powell said that while the global economy has slowly been reducing the rate of growth that it had achieved about a year ago, the pace of growth of the US economy had made him “very happy”.   He was speaking at an event in Dallas, Texas earli3er in the week.

However the investors were warned by the central bank chief about some strong headwinds for the US economy in the next year and hence there was need to be cautious. According to Powell, the headwinds include a drop in foreign demand, a cool down in the real-estate market in the country US and the waning off of the impacts of the fiscal stimulus or the corporate tax cuts that were announced by Trump last year.

“We have to be thinking about how much further to raise rates, and the pace at which we will raise rates,” Powell said. He added that monetary policy goals are to “extend the recovery, expansion, and to keep unemployment low, to keep inflation low.”

The current approach of the Fed in following maximum employment and price stability policy would be reviewed in the upcoming year, said the Fed through a statement just a day after Powell spoke at the Dallas event.

“The Federal Reserve next year will review the strategies, tools, and communication practices it uses to pursue its congressionally-assigned mandate of maximum employment and price stability. The review will include outreach to a broad range of interested stakeholders,” the statement said.

The Fed announced that it would host a number of public events throughout the US to solicit opinions from outside stakeholders as well as sponsor a research conference in June as a aprt of the outreach effort.

The Federal Open Market Committee, the Fed’s policy making body, led a bullish anticipation for the economy and it has raised the benchmark interest rates three consecutive times this year. It is expected that the Fed would again raise the rates in for a fourth time in December.

The increasing rates by the Fed has resulted in an increase in capital inflow into the US but with the associated large-scale drop in currency and turmoil in the financial markets in the emerging economies such as Turkey, Argentina and some of the Southeast Asian countries.

The assets prices are being hurt by the current rates of interest and therefore it is no more sustainable to further increase rates of interests, said hedge fund billionaire Ray Dalio. He believes that in its policy reference toolkit, preference should be given to asset prices over economic conditions when the central bank meets next.

“We’ve raised interest rates to a level that it’s hurting asset prices. We have now a flat yield curve,” the founder of Bridgewater Associates said in a television program. “We’re in a situation right now that the Fed will have to look at asset prices before they look at economic activity.”

(Adapted from Xinhuanet.com)

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Categories: Economy & Finance, Regulations & Legal, Strategy, Sustainability, Uncategorized

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