The Federal Reserve Chair, Jerome “Jay” Powell, has once again sent a signal of caution to markets early this week. Powell stated that the talk of cutting interest rate is premature and that more rate hikes are still possible for 2019.
The Fed’s benchmark rate stands at 2.25% to 2.5% after the central bank increased in December, and this was only the fourth hike since the global financial crisis in 2008. However, the central bank of the United States has put slow momentum on its monetary policy. This could signal to the markets that they are uncertain about the strength of the economy and that the central bank is in no rush to tighten its monetary policy.
The market immediately reacted to Powell’s remarks with a sell-off on stocks, commodities and the U.S. dollar. According to analysts, this was due to investors realizing that the Fed Chair’s words are more like they are cutting off any possibility of further rate cuts. With such an uncertain economic outlook, no one wanted to take too much risk with further rate hikes.
On the other hand, some economists are saying that the Fed Chair’s comments are a cautious and sensible approach given the fact that the US yields are way below the global average and the fact that the American economy is still not entirely insulated from global economic risks such as the US-China trade war.
Whatever the case, it looks like Powell has made it clear that the Federal Reserve is in no rush to tighten monetary policy. With that being said, Fed watchers can be pretty sure that the next few months are not likely to see any more rate hikes. The only thing that is certain is that the US economy is experiencing some volatility and uncertainty, and that the Federal Reserve is poised to act in the face of these uncertain times.
