Fed's Powell sees 'favourable' outlook, 'sustainable' expansion

Fed's Powell sees 'favourable' outlook, 'sustainable' expansion

Federal Reserve Chairman Jerome Powell paid tribute to one of his predecessors by emphasizing the importance of an independent central bank that is not influenced by partisan pressures.

To reinforce his point, Powell added a quote from Marriner, who served as Fed Chairman from 1934 to 1948. The fact that it will begin growing again should not be read as an effort to stimulate the economy, Powell said, but rather to meet the public's demand for cash, bank demand for reserves and to carry out other core Fed functions. This expansion of the Federal Reserve's balance sheet is a departure from quantitative tightening policies.

Markets have been waiting for the Fed to decide what permanent policies it might put in place to avoid the sort of disruption that occurred recently, when reserve shortages pushed the target federal funds rate to the top of the range set by the central bank - a situation that could disrupt the Fed's goals for monetary policy if it became a regular feature of financial markets.

The three-year note auction drew a high yield of 1.413 percent and a bid-to-cover ratio of 2.43, while the ten previous three-year note auctions had an average bid-to-cover ratio of 2.49.

The Fed has cut interest rates twice this year to shelter the USA economy from weak global growth and trade-policy uncertainty. Still, US-China trade tensions loomed large - the US is imposing visa bans on Chinese officials linked to China issued a strong statement about the US move on the latest blacklist additions and Bloomberg also reported the US administration is moving ahead on discussions to restrict capital flows to China, the report added. Futures were little changed after the release of Powell's comments. "The next FOMC meeting is several weeks away, and we will be carefully monitoring incoming information".

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.

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A recent spate of weak factory data and other signs of a slowdown have helped to fuel market expectations of another cut in October.

The Fed two interest rates this year, in July and September, were made in that spirit and have helped maintain a "favorable" outlook for jobs and inflation, Powell said. The September jobs report showed a gain of 136,000 positions and unemployment falling to 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. Here's why he thinks 'all market participants need to worry'.

Money markets were roiled last month as a combination of corporate tax payments and the settlement of Treasury debt purchases temporarily sent short-term interest rates skyrocketing.

"We will not hesitate to conduct temporary operations if needed to foster trading in the federal funds market at rates within the target range", Powell said. "That time is now upon us".

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