January 18, 2019 / 2:14 PM / 6 months ago

Fed policymakers leave little doubt: Rate hikes can wait

SOMERSET, N.J./SAN FRANCISCO (Reuters) - “Patience” is the new mantra at the Federal Reserve, less than two weeks ahead of the U.S. central bank’s first policy meeting of the new year, as officials leave little doubt they want to stop raising interest rates - at least for a while.

FILE PHOTO: John Williams poses for a photo at the Federal Reserve Bank of San Francisco, California, U.S., January 19, 2018. REUTERS/Ann Saphir

Fed Chair Jerome Powell first used the word “patient” to describe his approach to monetary policy early this month, in words that soothed financial markets after months of volatility.

This week seven other policymakers followed Powell in embracing a “patient” approach or otherwise signaling an inclination to pause the cycle of rate hikes.

That follows a wait-and-see approach laid out earlier this month by several other Fed policymakers, making clear that a consensus has emerged among the 17 Fed officials who will meet on Jan. 29-30.

Slower global growth, a stock meltdown last quarter, and a partial U.S. government shutdown that threatens consumer confidence and spending have many of them worried about what Fed policymakers only last month called “strong” economic activity. And, they say, the economy has yet to feel the full effects of the Fed’s four rate hikes last year.

“The approach we need is one of prudence, patience and good judgment,” New York Fed President John Williams said on Friday, adding that if growth continues, further rate hikes could be needed “at some point.”

But for now, he said, the tail winds that propelled the U.S. economy for most of last year have “lost their gust.”

Mary Daly, who used to work for Williams when he ran the San Francisco Fed and now is president of that regional bank herself, is “leaning toward pausing for a while” to see how the economy progresses, the Washington Post reported Friday, in remarks confirmed by a bank spokesman.

Similarly, Dallas Fed President Robert Kaplan said on Tuesday the Fed’s “patience” should run a quarter or two. Even Kansas City Fed President Esther George, who made her name as the lone backer of rate hikes when most policymakers opposed them, made the case for a pause on rate hikes.

Chicago Fed’s Charles Evans and Minneapolis Fed’s Neel Kashkari this week reiterated their support for pausing rate hikes, and St. Louis Fed’s James Bullard and Atlanta Fed’s Raphael Bostic staked out that view earlier this month.

Concerns range from broad ones like slowing growth in China to narrower ones like the ongoing budget stalemate in Washington that has kept parts of the federal government shut down for 28 days.

Uncertainty around such issues, as well as over the outlook for Britain’s contentious exit from the European Union, presents negative risks for the U.S. economy, Fed Governor Lael Brainard said in a Marketplace interview aired late Friday.

“The longer these drag on the more I worry that they really materially weigh on consumer confidence, business confidence, and then start to work their way through actual activity in the economy,” Brainard said.

That may already be happening. Consumer confidence has fallen to a two-year low, a gauge released early Friday showed, in part because of the shutdown, which Williams said could shave as much as a full percentage point off of first-quarter economic growth.

Not all policymakers are equally worried. Fed Governor Randal Quarles on Thursday said the “base case remains very strong” for the U.S. economy. Boston Fed’s Eric Rosengren said earlier this month that the Fed may still need to raise rates twice this year. That is what the Fed signaled when it lifted rates in December to a target range of 2.25 percent to 2.5 percent.

Markets, however, are not buying it. On Friday U.S. short-term interest-rate futures were pricing in just a one-in-four chance of a single interest-rate hike this year.

Reporting by Trevor Hunnicutt in Somerset, N.J., and Ann Saphir in San Francisco; Editing by Leslie Adler

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