Fed Says: Quantitative Easing And Negative Interest Rates Could Be Considered

Fed Says Quantitative Easing And Negative Interest Rates Could Be Considered

Slow Economy Growth: Isn’t A Cause For Alarm

The US economy is moving towards a “new normal” of slower growth which according to the New York Federal Reserve President John Williams will keep the monetary policy restrained.

“I’m not going to say whether we would ever need to raise interest rates or lower interest rates in the future but for the time being I think we’re in a good place,” said Williams who didn’t offer any prediction on the rate hikes for 2019.

Speaking at the Economic Club of New York, Williams cited three factors viz. tighter financial conditions, geopolitical uncertainty, and global slowdown, for the slower economic growth as GDP is likely to drop to 2 percent, he said this “isn’t necessarily a cause for alarm.”

“Now, I know this talk of slowing growth is causing uncertainty, some hand-wringing, and even fear of recession. But slower growth shouldn't necessarily come as a surprise. For quite some time, the economic fundamentals have pointed to GDP growth much lower than what we saw in the 1990s, for example.”

He further called the labor market “very strong” and the inflation is also right around the Fed’s objective of 2 percent along with sustainable growth and the overall picture of the economy that is “about as good as it gets.”

https://twitter.com/lopp/status/1103376518301011969

Monetary Policy Outlook: “It Depends”

The current federal funds rate is at 2.4 percent that Williams says is fine where they are right now but if the economic outlook changes, “My short answer: it depends.”

“The base case outlook is looking good, but various uncertainties continue to loom large. Therefore, we can afford to be flexible and wait for the data to guide our approach,” Williams said.

In 2018, the Fed has raised its target interest four times and this year expects two more hikes but the market is expecting it to remain in the 2.25 and 2.5 percent range.

“We'll consider the full range of data, the headline statistics, the market indicators, and we'll listen to our business contacts on the ground, as we aim to keep the economy on its current course of a strong labor market, sustainable growth, and 2 percent inflation.”

https://twitter.com/krugermacro/status/1103468996878389248

Meanwhile, Qualitative Test Scraped For US Banks

In another event, the Federal Reserve won’t be flunking the banks based on operation or risk management lapses any longer. The move which is a big win for major banks like JP Morgan, Bank of America, and Goldman Sachs among others will still apply to the US subsidiaries of the five foreign banks. Lenders will also be subject to this test.

The Fed said it would eliminate the qualitative objective for most firms because of the “improvements in capital planning made by the largest firms” since the 2008 crisis. However, the Fed will still examine the domestic banks for these issues but instead of flunking will address them through enforcement actions.

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