The tone and substance of the announcement made yesterday by U.S. Fed Chair Jerome Powell differed markedly from the one he made after the December 19 meeting of the Fed’s Open Markets Committee. On that date, Powell announced that the Fed was raising rates so that they would range between 2.25% and 2.50%.
There was also a hint that perhaps there would be two hikes in 2019 and then one in 2020 as the Fed, like the Bank of Canada tries to get back to what it considers normal for interest rates after years of low rates from the time of the 2008-09 depression. While Powell said at the time that there was no pre-set course for rate hikes he also said that the economy is growing at a strong rate.
This hike, if one remembers back, brought on the ire of President Trump who said on December 24, “the only problem our economy has is the Fed.” In response the Fed hit back saying “that “nothing will cause us to deviate from that [doing its job].” As Bank of Canada’s Governor Poloz has said many times it will be trying to get the balance right between stimulating growth and curtailing economic growth and causing a recession.
Then on Monday, January 14, Jerome Powell in a speech to the Economic Club in Washington attempted to clarify what the Fed would be doing in the future. He said that the Fed would be “patient and flexible” in determining when to next raise rates. He added “there is no pre-set path for rate hikes.”
He did speak again about the concern that by tightening credit too much the economy could be thrown into a recession. However, the underlying economy is performing just fine.
Powell also said that Trump’s criticisms were not having any impact on Fed decisions. Commenting on the effect of the government shutdown on the economy and the work of the Fed, he said “if we have a longer shutdown, I think that would show up in the data pretty clearly.”
That brings us to yesterday with the central bank of the United States faced with pretty much the same concerns as the Bank of Canada, except that the U.S. economy continues to grow.