Fed's Daly leaning toward pause in rate hikes: Washington Post

SAN FRANCISCO (Reuters) – San Francisco Federal Reserve Bank President Mary Daly is leaning toward pausing interest rates hikes for a while, though she sees “nothing in the data” to suggest an imminent recession, according to the Washington Post, which published a profile on the policymaker on Friday.

The article paraphrased Daly’s interest-rate remark without quoting it directly. A San Francisco Fed spokesman confirmed the remark was accurate.

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Fed's Williams says rate policy must be patient, data dependent

SOMERSET, N.J. (Reuters) – The U.S. Federal Reserve must be patient and guided by data when considering whether to raise interest rates, New York Fed President John Williams said on Friday, in remarks reinforcing the central bank’s commitment to a wait-and-see approach.

Williams said inflation pressures remain mild yet the economic “tailwinds” that boosted the economy in 2019 “have lost their gust,” including due to an ongoing partial shutdown of the U.S. government.

If those pressures cause the economic outlook to deteriorate, the Fed could pause rate hikes or adjust the path of balance sheet normalization, Williams said.

“The approach we need is one of prudence, patience, and good judgment – the motto of ‘data dependence’ is more relevant than ever,” he said in remarks prepared for delivery to the New Jersey Bankers Association.

“If growth continues to come in well above sustainable levels, somewhat higher interest rates may well be called for at some point. However, if conditions turn out to be less robust, then I will adjust my policy views accordingly.”

The remarks come as Fed policymakers have signaled a willingness to wait to deliver more rate hikes until they have a better handle on whether slowing global growth and financial market volatility will undercut an otherwise solid U.S. economic outlook.

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U.S. economy 'very strong' despite market worries – Fed's Quarles

NEW YORK (Reuters) – The U.S. economy and labor market is strong with inflation contained, even while financial markets have recently been focused on the risk that global economic growth will slow further, a Federal Reserve governor said on Thursday.

“Clearly markets are more attuned currently to downside risks but the core, base case remains very strong” for the U.S. economy, Randal Quarles, the central bank’s vice chair for supervision, said at an insurance industry conference.

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U.S. labor market tightens, wages grow moderately: Fed Beige Book

WASHINGTON (Reuters) – Labor markets tightened across the United States as businesses struggled to find workers at any skill level and wages generally grew moderately, the Federal Reserve said on Wednesday in its latest report on the economy.

The U.S. central bank’s “Beige Book” report, a snapshot of the economy gleaned from discussions with business contacts, found tight labor markets across all 12 Fed districts, with a majority reporting moderate wage gains.

A majority of districts also reported modest-to-moderate price increases, with a number saying higher tariffs had driven up costs.

The Fed reported that outlooks for the economy were generally positive, but added that many districts said contacts were less optimistic due to increased financial market volatility, rising short-term interest rates, falling energy prices, and elevated trade and political uncertainty.

The effect of the partial U.S. government shutdown, now in its fourth week, appeared to be muted while the information for the Beige Book was gathered.

The only mention of a shutdown-related impact came from the Chicago Fed, which said farmers and others were facing greater uncertainty due to the slowed release of government agricultural reports. Payments to farmers impacted by tariffs were also disrupted by the shutdown.

The Fed raised interest rates at its policy meeting last month, its fourth hike of 2018.

But with inflation showing no sign of rising above the Fed’s 2 percent target, and mounting worries about trade policy and slowing global growth, Fed Chairman Jerome Powell has said the central bank will take a “patient” approach to rate hikes this year.

And now, as the record-long government shutdown threatens growth further and the Fed begins preparing for its next policy meeting later this month, many of Powell’s fellow policymakers have echoed that sentiment.

The Beige Book offers a window into what policymakers are seeing and hearing in their own districts, information that they typically draw on when they stake out their own views of the economy at the Fed’s rate-setting meetings.

Powell in particular has said he pays close attention to such anecdotes to assess where the economy is heading before it is apparent in the data.

The latest Beige Book was prepared by the Chicago Fed based on information collected on or before Jan. 7, 2019.

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U.S. inflation expectations stabilize after steady year: NY Fed

NEW YORK (Reuters) – Inflation expectations held mostly steady in December, with one measure recovering from a brief dip, capping a remarkably stable year of responses to a Federal Reserve Bank of New York survey.

The survey of consumer expectations, published on Monday, is one of the Fed’s price gauges as it weighs the need for rate rises. It showed three-year ahead inflation expectations were 3 percent last month, up from 2.9 percent in November, returning to the level at which it has hovered since March.

The one-year measure was steady at 3 percent, where it has held since April.

Stable and low inflation is one of the main reasons that the U.S. central bank, having raised interest rates four times last year, is now taking a wait-and-see approach to any more tightening in 2019.

The survey also showed another rise in expectations, to 38.8 percent in December from 35.8 percent a month earlier, that U.S. unemployment would be higher one year from now. Joblessness edged up to 3.9 percent last month, from 3.7 percent in November, thanks to a jump in labor force participation.

The internet-based survey taps a rotating panel of 1,300 households.

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Powell sought fast end in 2013 to Fed's bond-buying program

(Reuters) – Federal Reserve Chairman Jerome Powell, in his early days on the U.S. central bank’s board of governors, argued frequently and forcefully for an end to the bond purchases undertaken to support the recovery from the financial crisis, transcripts of policy meetings from 2013 released on Friday showed.

Powell, who joined the board in May 2012 when Ben Bernanke was Fed chief, advocated in January 2013 for a plan to taper bond purchases, “ending them before year-end, whether or not we see a substantial improvement in the labor market,” according to the transcript from that month’s meeting of policymakers.

The Fed did announce a plan to slow its purchases later that year, but not before global financial markets endured months of turbulence in what has become widely known as the “taper tantrum.”

Powell succeeded Janet Yellen as Fed chief in 2018.

The release of the transcripts from the Fed’s eight policy meetings in 2013 gives more insight into policymakers’ thinking and deliberations during and after the 2007-2009 financial crisis and recession.

The year 2013 marked a turning point in Fed policy as it took its first steps to end the massive support it had provided, including cutting interest rates to near zero and accumulating more than $4 trillion in bonds and mortgage-backed securities.

The bond-purchase program, known as quantitative easing and designed to keep a lid on long-term borrowing costs to help stimulate the economy, was hugely controversial and had its critics within the Fed itself.

What to do about the Fed’s ballooning balance sheet stood out as the overarching debate in the U.S. central bank’s closed-door meetings that year.

That same issue reverberates today, highlighting the complexity of managing its massive portfolio – and now getting rid of a large portion of it – without disrupting markets. A key source of tension, then as now, was that the Fed saw one path forward, and the markets saw something entirely different.

Last month, Powell sent markets tumbling with a message that the bond-shedding program is on “auto pilot” and then. Last week, he sent markets soaring when he said the Fed was listening to concerns and would be flexible.

MISJUDGING MARKETS

The taper tantrum was triggered in May of 2013 when Bernanke told lawmakers the Fed could “take a step down in our pace of purchases” in coming meetings. The statement sent bond yields rocketing higher and stocks lower, and resulted in a tightening of financial conditions that caught Fed officials by surprise.

(GRAPHIC: Federal Reserve bond holdings – tmsnrt.rs/2H3yDnl0

The 2013 transcripts show Fed officials generally, and Powell specifically, misjudged markets ahead of the taper tantrum.

At the Fed’s April 30-May 1 policy meeting, Powell told colleagues he would be arguing for a taper in June as long as economic data continued to improve, and he voiced confidence that markets would take it in stride.

“This is not an unmanageable thing in the context of reasonable economic data,” he said. “This is not going to be done in a way that provokes a massive reaction of shock from the market.”

Ultimately, Fed policymakers put off announcing the plan to slow the bond purchases until their final meeting of the year in December, setting in place a program to wind them down “mechanically” over the following year.

Even as they approached that announcement, Fed officials were at odds over what message they would be sending by reducing economic stimulus at a time when unemployment was still relatively high, with some arguing it would be impossible not to leave the public confused, according to the transcripts.

Powell, a lawyer by training and a Wall Street veteran before joining the central bank in 2012, said that between the effects of the taper tantrum, the Fed’s decision not to taper in September, and some confusing signals in economic data, investors now thought any move by the Fed would be months down the road – with risks building in the financial sector.

“When the committee does taper, there may, again, be a significant reaction as investors unwind speculative trades,” he said at the Oct. 29-30 meeting.

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Powell has since changed his thinking about the Fed’s bond purchases, acknowledging that the risks he and others saw in the program did not materialize. He now says he believes the purchases were fundamental to avoiding an even worse economic downturn, and that the Fed would be ready to do it again in a serious recession.

The Fed’s policy-setting committee releases a statement at the end of its eight meetings each year. Minutes of each meeting with more detail on the deliberations but without individuals identified are released three weeks after each meeting.

The transcripts from all of the meetings in a year are released six years later, usually in January.

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Fed can be patient as U.S. economy evolves in 2019: Powell

WASHINGTON (Reuters) – Federal Reserve Chairman Jerome Powell said on Thursday the U.S. central bank has the ability to be patient on policy given inflation is stable, allowing it to assess whether the U.S. economy will slow this year as some in financial markets worry.

While those initial comments boosted stocks, they later slipped when Powell said the Fed would shed significantly more assets than it already has. The reaction by investors underscores the delicate balance Powell must maintain as he continues to see strong economic momentum at home even as investors fret over a slowdown overseas.

“Especially with inflation low and under control, we have the ability to be patient and watch patiently and carefully as we … figure out which of these two narratives is going to be the story of 2019,” he said at the Economic Club of Washington.

He also downplayed December predictions from Fed policymakers showing that, at the median, interest rates would be raised twice this year. “There is no such plan,” Powell said. “That was conditional on a very strong outlook for 2019, an outlook that may still happen.”

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The U.S. central bank raised rates four times last year in the face of robust economic growth and unemployment that touched its lowest level in half a century.

Powell said, for now, there is no evidence suggesting an elevated possibility of a recession.

“There is no pre-set path for rates … particularly now,” he said. If global growth slows more, “I can assure you … we can flexibly and quickly move policy, and we can do so significantly if that’s appropriate,” he added.

While market reaction to Powell’s comments was fairly muted, the S&P 500 index was down about 0.4 percent and 10-year Treasury yields hit a session high on Thursday afternoon, reflecting investors’ sensitivity to any hint about how much longer the Fed will continue to pare its roughly $4-trillion portfolio of bonds.

“It’ll be substantially smaller than it is now … but nowhere near where it was before,” Powell said of the balance sheet, which began shrinking in October 2017. Before the Fed began buying bonds in the face of the 2007-2009 recession, it had about $900 billion in assets.

The Fed chief was also asked about the partial U.S. government shutdown. He said an “extended” shutdown would show up in economic data “pretty quickly” and, since it shutters some agencies that provide economic data, it would also make the picture of the economy less clear for the Fed.

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Fed at 'end of road' on rate hikes, Bullard says

(Reuters) – With U.S. growth likely to slow this year, the U.S. Federal Reserve has come to the “end of the road” on its current interest-rate hike cycle, St. Louis Federal Reserve Bank President James Bullard said on Thursday.

“I am concerned we are on the precipice of a policy mistake,” Bullard told reporters after an event in Little Rock, Ark. “We are good where we stand right now… What I don’t want to do is project that further increases are needed, that we are somehow short of our goal.”

Bullard is a voter on Fed policy this year, and his remarks suggest he may use that vote to cast a dissent should the Fed press forward with what in December policymakers projected would be two more rate hikes this year. Fed Chair Jerome Powell has faced no dissenting votes since he took over the gavel at the policysetting panel last February.

Under the Fed’s rules that limit votes by presidents of the Fed’s 12 regional banks, Bullard did not vote on rate setting in 2017 and 2018. But on Thursday he said would have supported the Fed’s rate hikes over most of that period because the economy grew faster than he and other policymakers had expected, pushing unemployment down more than anticipated.

That opened a window for the Fed to increase rates to more normal levels, he said.

But, he said, he argued against the December rate hike, the Fed’s fourth of the year and its ninth since it started its rate-hike cycle in December 2015, because inflation expectations had fallen.

Those expectations, he said Thursday, suggest the U.S. central bank’s policy stance “might be too hawkish.” He urged the Fed to heed that warning, and to be careful not to be so aggressive on policy that it inverts the yield curve.

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The Fed needs to take signals from markets seriously, Bullard said, adding that “The market’s almost always right in that situation, and it’s the Fed that’s been wrong.”

Bullard also said he is concerned what has been a moderate slowdown in global growth could worsen.

While trade tensions between the U.S. and China and other trading partners may be inhibiting domestic business spending, the uncertainty and “angst” may be even more intense overseas, he said. That may be connected to the global growth slowdown, he said.

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Trump renews dig at Fed, expresses longing for lower interest rates

WASHINGTON (Reuters) – President Donald Trump on Tuesday expressed longing for the lower interest rates that the Federal Reserve put in place during the 2007-09 recession, saying he could boost the economy if the central bank brought interest rates to zero.

“Economic numbers looking REALLY good. Can you imagine if I had long term ZERO interest rates to play with like the past administration, rather than the rapidly raised normalized rates we have today. That would have been SO EASY! Still, markets up BIG since 2016 Election!” Trump wrote in an early morning tweet.

Federal Reserve Chairman Jerome Powell on Friday said he would not resign even if President Donald Trump asked him to do so, a clear assertion of the U.S. central bank’s independence in the face of Trump’s strident criticism of the Fed’s rate hikes.

Legal experts say it is not clear whether Trump could in fact dismiss Powell.

After the Fed’s decision in mid-December to raise rates for a fourth time in 2018, reports surfaced that Trump had discussed with his advisors the feasibility of firing Powell.

Trump in the final months of 2018 repeatedly attacked the Fed, blaming market volatility on the central bank’s steady and gradual interest-rate increases and calling it the “only problem” for the U.S. economy.

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Liang withdraws nomination for Fed board seat: White House

WASHINGTON (Reuters) – Former Federal Reserve economist Nellie Liang has withdrawn her nomination for a seat on the Fed’s Board of Governors, the White House said on Monday.

“We regret to announce that today Nellie Liang notified us that she has withdrawn from nomination to the Federal Reserve Board of Governors. We supported her nomination and believe she would have made a good Governor,” White House spokeswoman Lindsay Walters said in a statement.

President Donald Trump, who has criticized the central bank for raising interest rates, nominated Liang in September.

At the time of the nomination, two White House officials told Reuters that Liang had a strong background on financial and monetary stability, including crisis response, and was considered a good fit for the Fed board.

Liang, who established the Fed’s Division of Financial Stability in 2010, left the central bank two years ago to join the Brookings Institution think tank.

As head of the Fed’s increasingly influential financial stability office, she helped develop the policies put in place after the 2008 financial crisis that many Republicans have hoped to lighten.

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