Economy

Time is now for Fed to boost security holdings, Powell says

Time is now for Fed to boost security holdings, Powell says”

While the Fed relies on economic statistics to determine its policy steps, Mr Powell noted that revised data showed recent U.S. job creation was significantly weaker than previously reported.

"My colleagues and I will soon announce measures to add to the supply of reserves over time", he said in the text of a speech that was to be delivered Tuesday to the National Assn. of Business Economics in Denver.

The Fed has shifted its stance since late past year, cutting the federal funds rate by 50 basis points at its last two meetings.

According to an Associated Press report, Powell used a Salt Lake City appearance at the premiere of a documentary about former Federal Reserve Chairman Marriner Eccles. Powell did not mention President Trump by name, nor did he refer to the series of often-insulting tweets that the President aimed at him and the other Fed officers. Three-month bill yields fell on the comments.

"Neither the recent technical issues nor the purchases of Treasury bills we are contemplating to resolve them should materially affect" interest rate policy, Powell said.

The Fed has reduced its benchmark rate twice in 2019 and is expected to approve a third cut late this month.

Traders of short-term interest-rate futures are now pricing in more than an 80% chance of a third interest rate cut this year when the Fed next meets, October 29-30.

The move is a tacit admission by the chairman that the Fed let the level of cash reserves fall too low.

"Looking ahead, policy is not on a preset course", he said. "The next FOMC meeting is several weeks away, and we will be carefully monitoring incoming information".

As Powell has stated before the USA economic outlook is favorable, but there are risks to that outlook, mostly from global developments.

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

Powell also acknowledged that the Fed now recognizes that the unemployment rate can fall lower than it previously thought without sparking high inflation.

"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.

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.

Some current and former Fed officials think the easiest fix to recent funding market pressures would be to build a "buffer" of reserves $150 billion or $250 billion above mid-September's low watermark by buying Treasury securities.

"As we indicated in our March statement on balance sheet normalization, at some point, we will begin increasing our securities holdings to maintain an appropriate level of reserves", Powell said.

A jump in gas prices probably can be absorbed and likely would have little overall impact, he said. "That time is now upon us".



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