The highest officials of the Fed engage patiently and willing to act if needed

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(Bloomberg) – Federal Reserve President Jerome Powell's decision makers have made it clear to the central bank that the central bank would be cautious about raising interest rates after raising them four times over. Last year.

"We are in a place where we can be patient and flexible and wait to see what is changing, and I think in the meantime we are waiting and watching," said Powell during a session of questions and answers to the Economic Club. from Washington, DC

His deputy, Richard Clarida, echoed these comments and also said that the obstacles to the US economy should be offset by a policy if they prove sustainable.

Their comments, at various events on Thursday, reinforce the message that the Fed will maintain its rates while assessing the impact of the slowdown in global growth and tighter financial conditions on the economy.

Clarida, who spoke at New York University's Money Marketeers, said the slowdown in global growth and tighter financial conditions was a "crosswind" for the economy.

"If these side winds continue, an appropriate and forward-looking monetary policy should be put in place to keep the economy as close as possible to our dual mandate objectives, namely a maximum of Employment and price stability, "he said.

US stocks initially declined after Powell said the central bank was continuing its process of reducing its balance sheet to a more normal level, removing the stimulus measures put in place to revive the economy after the financial and economic crisis. the recession of ten years ago. They then resumed, with the S & P 500 index closing up about 0.5%. Treasury yields rose with the dollar.

The balance sheet "will be considerably smaller than it is now," although it was more important than before the crisis, Powell said. He said he did not know the exact level. The Fed's critics say that its approach of gradually reducing the balance sheet contributes to the turbulence of the financial markets.

Balance sheet

Clarida then said that, even if the Fed was still looking at the size of the long-term balance sheet, any decision as to size would be in line with the Fed's goals of maximizing employment and price stability.

"If we find that the current program of standardization of balance sheets or any other aspect of standardization no longer promotes the achievement of our dual mandate objectives, we will not hesitate to make changes," he said. stated, echoing similar remarks by Powell in January. 4

Central bankers in the United States refine their message after the aggressive tone of their December 19 statement and forecasts of further rate hikes in 2019 on the financial markets. Fed communications – and a Bloomberg News report that President Donald Trump had discussed Powell's dismissal – helped make the worst December ever since the Great Depression.

Since the meeting, Fed officials have indicated that they are less likely to continue to increase than their statement and forecasts for two increases in 2019.

Powell said last week that he "listened carefully to the message that markets are sending" about downside risks. The December meeting minutes released on Wednesday showed that many officials felt that the central bank "could afford to wait for further strengthening of the policy," indicating that the Fed could suspend rates interest until March or longer pending further clarification of the risks weighing on the global market. growth that could affect the US economy.

The more flexible approach, apparent in recent minutes and speeches, has supported stock prices. Bloomberg's financial condition index picked up much of its December tightening.

On Thursday, Powell said he had not seen anything that indicates the risk of recession is high. The partial shutdown of the government should not leave any trace on the economy in the short term, even if the Fed will have a less clear picture of growth without data from the Department of Commerce, which publish figures including the retail sales and gross domestic product.

At the same time, Powell acknowledged that financial markets are expressing concern about risks. The main concern is global growth, he said.

Fed policymakers projected higher-than-trend economic growth for this year in their December forecast and expect further declines in the unemployment rate. These forecasts appear to be supported by a December report on the robust labor market.

– With the help of Katia Dmitrieva and Christopher Condon.

To contact the reporters on this story: Rich Miller in Washington at rmiller28@bloomberg.net, Craig Torres in Washington at ctorres3@bloomberg.net, Jeanna Smialek in New York at jsmialek1@bloomberg.net

To contact the editors responsible for this story: Alister Bull at abull7@bloomberg.net, Scott Lanman

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