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Policy settings at an appropriate level, Fed's Powell says

By Alexander Bueso

Date: Wednesday 13 Nov 2019

LONDON (ShareCast) - (Sharecast News) - The head of the Federal Reserve sounded a confident note on the economic outlook on Wednesday and appeared to signal that the central bank's monetary policy was likely set to remain at its current level for an extended period.
In prepared remarks for a speech before the Joint Economic Committee of the US Congress, Jerome Powell described the baseline outlook for the economy as "favourable", but said that "noteworthy" risks to the outlook remained - particularly as pertains to growth overseas and trade tensions.

Furthermore, inflation continued to run below the central bank's target and gauges of longer-term inflation expectations remained at the lower end of their historical ranges, he said.

"Persistent below-target inflation could lead to an unwelcome downward slide in longer-term inflation expectations," Powell told the Committee.

Significantly, the Fed chairman judged the overall level of vulnerabilities facing the financial system as still at a "moderate level", although it was "elevated" in some asset classes.

Regarding the outlook for interest rates and monetary policy more broadly, the current policy settings were seen "likely to remain appropriate as long as incoming information about the economy remains broadly consistent with our outlook of moderate economic growth, a strong labor market, and inflation near our symmetric 2 percent objective."

"Policy is not on a preset course," Powell added.

At the time, the target range for the Fed funds rate was at 1.50-1.75% and at their October policy meeting, rate-setters in the US had committed to start buying short-term US Treasuries at an initial rate of $60.0bn per month.

And according to the CME's Fed Watch tool, futures markets were only pricing in roughly even odds of another 25 basis point cut in official short-term interest rates by year-end 2020.

Commenting on Powell's speech, Capital Economics's Andrew Hunter said: "it now looks increasingly likely that the Fed will move to the side-lines for an extended period."