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Tags: fed. powell | rates | economy

Powell: Fed May Have to Resume Balance Sheet Growth

Powell: Fed May Have to Resume Balance Sheet Growth
(Manuel Balce Ceneta/AP)

By    |   Wednesday, 18 September 2019 03:12 PM EDT

Federal Reserve Chair Jerome Powell acknowledges that officials at the U.S. central bank are fractured about next steps on interest rates.

Powell also said the Fed may have to resume the organic growth of its balance sheet sooner than expected to help ease money markets.

Meanwhile, forecasts from the Fed show uncertainty about the course of rates after Wednesday's rate cut.

The uncertainty stems from President Donald Trump's pursuit of tariffs against China and a broader global slowdown that has irked businesses and manufacturers though consumer spending has been relatively solid.

"This is a time of difficult judgments and disparate perspectives," Powell said at a news conference. "I really do think that is nothing but healthy."

Powell spoke as Trump blasted him as a "terrible communicator," after the U.S. central bank's rate cut was less generous than what Trump wanted.

"Jay Powell and the Federal Reserve Fail Again," the president tweeted after the Fed reduced its federal funds rate by 0.25 points. "No 'guts,' no sense, no vision!"

The president has wanted the federal funds rate to be near-zero, rather than the range of 1.75% to 2% set by the Fed. Trump has remarked that other countries such as Germany have an advantage because their interest rates are negative, even though negative rates are a sign that those economies are in a recession and may struggle to grow in the longer term.

The market expected the quarter-point cut to the federal funds rate, which influences many consumer and business loans. But three of the 10 voting officials dissented from the decision, and the Fed looks divided on what to do next. That ambiguity may have displeased investors on Wall Street.

Fed officials are divided on the future path for their benchmark interest rate. 

In a wide-ranging news conference:

Powell said  the Fed may have to resume the organic growth of its balance sheet sooner than expected to help ease money markets, CNBC reported.

“Going forward, we’re going to be very closely monitoring market developments and assessing their implications for the appropriate level of reserves,” Powell said in a press conference. “And we’re going to be assessing the question of when it will appropriate to resume the organic growth of our balance sheet.”

Earlier this year “the Committee announced the decision to implement monetary policy in an ample reserves regime,” Powell added. “The main hallmark of that regime is that we use adjustments in our administered rates ... to keep the fed funds rates in the target range.”

Powell said he doesn’t think the central bank will look at using negative rates. “I just don’t think those will be at the top of our list,” Powell told reporters.

“Negative interest rates is something that we looked at during the financial crisis and chose not to do," he said. “We did not use negative rates, and I think if we were to find ourselves at some future date again at the effective lower bound -- again not something we’re expecting -- then I think we would look at using large-scale asset purchases and forward guidance.” 

A handful of central banks – in Denmark, the euro zone, Japan, Sweden and Switzerland – have pushed interest rates below zero. Earlier this month, the European Central Bank lowered its deposit rate by 10 basis points to minus 0.5% as part of a wide-ranging package to prop up the region’s faltering economy and lift depressed inflation. 

President Donald Trump has urged the Fed to emulate their example and push rates into negative territory. In a Sept. 11 tweet, he called on the Fed to “get our interest rates down to zero, or less,’’ arguing that the move would allow the U.S. government to bring the cost of servicing its debt “way down.’’

Material from Bloomberg, Reuters and the Associated Press has been used in this report.

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Headline
Federal Reserve Chair Jerome Powell acknowledges that officials at the U.S. central bank are fractured about next steps on interest rates.
fed. powell, rates, economy
662
2019-12-18
Wednesday, 18 September 2019 03:12 PM
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