MNI POLICY: Powell:Closely Monitoring Emergence Of Coronavirus

-- Powell Says Current Stance To Likely Remain Appropriate

By Evan Ryser

     WASHINGTON (MNI) - While the Federal Reserve is closely monitoring the

emergence of the coronavirus and risks to the outlook remain, the FOMC views the

current stance of monetary policy as likely to remain appropriate, Fed Chair Jay

Powell said in prepared testimony to Congress Tuesday. 

     "[W]e are closely monitoring the emergence of the coronavirus, which could

lead to disruptions in China that spill over to the rest of the global economy."

     The FOMC believes that the current stance of monetary policy will support

continued growth, a strong labor market, and inflation returning to the 2%

target, Powell said. 

     The uncertainties around trade have diminished recently, he said, but risks

to the outlook remain. 

     Powell said that growth in the second half of 2019 rose at a moderate

level, despite sluggish growth abroad and trade developments, and fundamentals

supporting household spending remain solid.

     The Fed cut rates three times last year amid global risks and policymakers

have said only a "material reassessment" of the outlook could trigger more

stimulus.

     The pace of job gains has remained above what is needed to provide jobs for

new workers entering the labor force, he said, pushing the unemployment rate to

3.6% last month. 

     Powell said job openings remain plentiful. "Employers are increasingly

willing to hire workers with fewer skills and train them."

     While inflation ran below target throughout 2019, he said. "Over the next

few months, we expect inflation to move closer to 2 percent, as unusually low

readings from early 2019 drop out of the 12-month calculation." 

     Powell repeated his concerns of longer-term issues such as low labor force

participation relative to other advanced economies and subpar productivity

gains. 

     Pointing to the decline in the neutral rate of interest, Powell said

central banks may be limited in its ability to counter a downturn in the future

and has been reviewing its framework, which is due out "likely around the middle

of the year."

     "The current low interest rate environment also means that it would be

important for fiscal policy to help support the economy if it weakens," he said,

and a sustainable federal budget would help ensure growth over the long term. 

     On the Fed's response to the repo spikes in September, Powell said that as

reserves reach durably ample levels the Fed will gradually transition away from

active use of repo operations and intends to "slow" purchases of Treasury bills

to allow for balance sheet growth in line with trend demand for Fed liabilities.

--MNI Washington Bureau; +1 202 371 2121; email: evan.ryser@marketnews.com

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