Fed’s QE Unwind to Continue on Autopilot, Rate Hikes on Hold for “Common-Sense Risk Management”: Powell

Fed’s QE Unwind to Continue on Autopilot, Rate Hikes on Hold for “Common-Sense Risk Management”: Powell by Wolf Richter – Wolf Street

QE may restart only if things get really ugly – think Financial Crisis.

“Patient” has become the Fed’s favorite word in recent weeks as just about all Fed governors slipped it into their speeches. Today the word made its way into the FOMC statement for the first time. During the Q&A at the press conference, reporters tried to get Fed Chairman Jerome Powell to nail down what “patient” actually means, how long “patient” would last. But they walked out empty-handed.

So what came out today was this:

The Fed will not change its target for the federal funds rate over the near term. It has been between 2.25% to 2.50% since December 19, and that’s where it will stay until the Fed runs out of “patience.”

The QE unwind continues on autopilot as outlined in 2017. The Fed has been discussing over the past three meetings how far to cut its balance sheet, and what the ultimate composition should be. But no decision has been made yet. So stay tuned, it said.

The Fed is pretty gung-ho about the US economy.

In the statement today, it said:

  • “The labor market has continued to strengthen.”
  • “Economic activity has been rising at a solid rate” (“strong” from the December statement was demoted to “solid”).
  • “Household spending has continued to grow strongly.”
  • “Growth of business fixed investment has moderated from its rapid pace earlier last year.”
  • “On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2 percent.”

Rates are on hold due to “cross-currents”

The slowing economy in China and Europe are on the Fed’s worry list, as are Brexit and the effects of the US government shutdown. Plus, “financial conditions” – yields, spreads, and other indicators that show that it is getting harder to borrow money as risk-taking abates – “tightened considerably late in 2018, and remain less supportive of growth than they were earlier in 2018,” Powell said at the press conference (video) – which is precisely what the Fed had set out to accomplish when it started the rate hike cycle.

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Wolf Richter

In his cynical, tongue-in-cheek manner, he muses on WOLF STREET about economic, business, and financial issues, Wall Street shenanigans, complex entanglements, and other things, debacles, and opportunities that catch his eye in the US, Europe, Japan, and occasionally China. WOLF STREET is the successor to his first platform… TP-Title-7-small-200px …whose ghastly name he finally abandoned in July 2014. Here’s the story on that. Wolf lives in San Francisco. He has over twenty years of C-level operations experience, including turnarounds and a VC-funded startup. He earned his BA and MBA in Texas and his MA in Oklahoma, worked in both states for years, including a decade as General Manager and COO of a large Ford dealership and its subsidiaries. But one day, he quit and went to France for seven weeks to open himself up to new possibilities, which degenerated into a life-altering three-year journey across 100 countries on all continents, much of it overland. And it almost swallowed him up.