Fed to stop shrinking portfolio this year, Powell says

Fed to stop shrinking portfolio this year, Powell says

But many private sector economists say they now believe the central bank will keep interest rates unchanged until late this year and may not raise them at all in 2019. The overall consumer price inflation is estimated to have been 1.7 percent in December, which is below the Fed's 2 percent target.

Former Federal Reserve Chair Janet Yellen says she doubts that President Donald Trump has a good grasp of economic policy or even knows the Federal Reserve's mandates. "It will light the way all the way to the end of the balance sheet normalization and that will result in the end of asset runoff sometime later this year".

Federal Reserve Chairman Jerome Powell said Wednesday that the Fed is close to announcing a plan to end the reduction of the size of its massive bond portfolio, which looks likely by the end of the year.

Responding to a question from Senate Banking Committee Chairman Mike Crapo, Powell said estimates for the amount of reserves that the banks are required to keep in the Fed so that the central bank can achieve its regulatory goals "have actually gone up substantially" over the course of past year or so. With rising demand for currency around the world, and from US banks for reserves held at the central bank, Fed policymakers now believe a big balance sheet is necessary just to ensure it has proper control over the short-term interest rates it sets to manage the economy.

The Federal Reserve, in December, indicated that it could raise interest hike rates two times this year.

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"We're going to be patient and watch as the economy evolves and also as the evolving risk picture changes, and how that will effect the outlook", he explained.

"I think the markets became much more sensitive to these issues", Powell said.

Powell said, "While we view current economic conditions as healthy and economic outlook as favorable over the past few months, we have seen some crosscurrents and conflicting signals". But he warned of growing risks, including a global slowdown, volatile financial markets and uncertainty about USA trade policy.

However, longer-run trends, "such as relatively stagnant incomes for many families and a lack of upward economic mobility among people with lower incomes, also remain important challenges", he said.

The U.S. GDP is now about $20 trillion, suggesting the Fed's balance sheet would be between $3.2 trillion and $3.4 trillion. The U.S. central bank had raised interest rates four times in 2018.

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