Powell sees cooler US hiring in possible hint of rate cuts

Marco Green
October 9, 2019

Federal Reserve Chairman Jerome Powell said Tuesday that US job growth since early previous year was not as robust as thought, a hint that the Fed may be ready to keep cutting interest rates to support the economy.

"The Fed will soon announce measures to add to reserves supply over time".

Powell said the (link)Fed was contemplating buying shorter-term Treasury bills, which include maturities of one year and less, but he emphasized the increase of its almost $3.6 trillion-sized portfolio did not mean a return to quantitative easing and did not have a bearing on its monetary policy stance. Three-month bill yields fell on the comments.

"I want to emphasize that growth of our balance sheet for reserve management purposes should in no way be confused with the large-scale asset purchase programs that we deployed after the financial crisis", Powell said.

The purchases of Treasury bills that the central bank is contemplating to resolve those issues shouldn't materially affect the stance of monetary policy, he said.

The Fed has cut interest rates twice this year to shelter the US economy from weak global growth and trade-policy uncertainty. Traders in federal funds futures are betting that the Federal Open Market Committee will reduce rates again at its October 29-30 meeting from the current target range of 1.75% to 2%.

Treasury prices rose after Powell's comments on the balance sheet, while stocks pared losses. But he repeated that as global risks evolve the Fed would move "as appropriate" to keep the decade-old expansion under way.

"Looking ahead, policy is not on a preset course", he said.

"It seems that Powell is trying to, in a soft way, demonstrate to the market that the Fed continues to be aware of the downside risks and is actively willing to support the economic expansion as needed", said Jason Ware, chief investment officer at Albion Financial Group in Salt Lake City, Utah. Major overseas economies, such as Germany, are also stumbling.

The job market has also downshifted, even as unemployment has fallen to a half-century low of 3.5%.

"Thus, the now reported job gains of 157,000 per month on average over the past three months may well be revised somewhat lower", he said.

While the Fed relies on economic statistics to determine its policy steps, Mr Powell noted that revised data showed recent USA job creation was significantly weaker than previously reported. Corporate tax payments due at the end of the quarter and bond sales by the federal government had soaked up so much cash as to send the overnight rates sharply higher.

The Fed announced last week that it will extend through October the ad hoc liquidity lifeline that it has been offering to USA funding markets since then. "Taking all that into account, we will act as appropriate", Powell said.

Recent volatility in US short-term funding markets raised concern that the Fed had allowed its balance sheet to become too small, leaving banks with an inadequate supply of reserves to manage occasional periods of high demand.

Other reports by Click Lancashire

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