Strategy
Date:2019/11/14

On November 13, 2019, the Federal Reserve Chairman Jerome Powell stated that, the central bank is likely to keep the interest rates unchanged as long as the economy remains on its present path. This latest statement has suppressed the expectations on further easing monetary policy, with generally mild reactions in the capital market.

In the testimony for the hearing, which was published in advance, Powell reiterated the stance he outlined in the interest rate decision two weeks ago that Fed’s inclination for more accommodative monetary policies this year have supported the continuous growth of the economy. He noted that since monetary policies usually lag behind, so it takes time for their effect to show up. “We see the current stance of monetary policy as likely to remain appropriate as long as incoming information about the economy remains broadly consistent with our outlook of moderate economic growth, a strong labor market, and inflation”, he said in prepared remarks.

The Fed has cut its benchmark rate three times this year to boost the sluggish economy, ushering in the longest expansion cycle in the U.S economic history. In terms of the performance of the current U.S. economic indicators, despite the weakness in business investment, the household consumption has continued to rise solidly which is supported by a healthy job market and favorable levels of consumer confidence, and the residential investment turned up in the third quarter following a previous decline. As it were, a series of proactive monetary policy the Fed previously made has helped support the economy to some extent. In the future, such policy may further play its lagged effect to better support the sustained expansion of the U.S. economy, and inflation near the symmetric 2 percent objective is likely to be realized. Therefore, Powell’s statement that the current monetary policy remains appropriate makes sense, mainly from the perspective of medium and long-term development.

Despite that, the U.S. economy is still under downward pressure, about which Powell had expressed concerns as well. The weakness in global growth, sustained international trade tensions, and U.S peoples’ negative expectations on future economic development all impede U.S. economic growth at different levels. For this reason, the Fed needs to continuously monitor and assess the influence degrees of these factors and respond timely with appropriate actions.

Therefore, the conclusion is just temporary, not static. It’s yet early to say that the Fed is going to end the expansion cycle. Whether for the Federal Reserve Chairman Jerome Powell or for the nominal “outsiders” like us, making a most reasonable decision requires further observations on the following performance of the U.S economy.


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