After the December rate hike, the central bank signaled dovishness by forecasting two rate hikes as opposed to three, but Former Federal Reserve Chair Janet Yellen is even more dovish.
“If there is a downturn in the global economy and that spills into the U.S. … It’s very possible we may have seen the last interest rate hike of this cycle,” said Yellen at the National Retail Federation’s annual Big Show event in New York.
The Federal initially forecasted four rate hikes in 2019, but following the turmoil in the capital markets to end 2018, that projection turned to two rate hikes in December. The markets are now expecting a rate pause and possibly cuts following a volatile end to the previous year.
However, Yellen doesn’t completely dismiss the notion that more rate hikes are possible in 2019.
“Perhaps another rate hike or two is perfectly possible, but nothing is baked in,” said Yellen.
“Patience is a Virtue” with Interest Rates
It seems that “patience” is the recurring theme in Fedspeak as of late with Fed Vice Chairman Richard Clarida echoing the same on Thursday. After four definitive rate hikes in 2018, the Fed is now taking a wait-and-see approach for 2019.
“We begin the year as close to our assigned objectives as we have in a very long time. In these circumstances, I believe patience is a virtue and is one we can today afford,” said Clarida in prepared remarks for the Money Marketeers of New York University.
Related: Federal Reserve’s Last Rate Hike Was a Mistake: Gary Kaltbaum
With Wall Street crying foul the past few months on the latest market declines, especially after a difficult December, the Fed is changing their tune in unison. Furthermore, with fears of a global economic slowdown despite a robust labor market domestically, the Fed is keen on exercising patience.
“If these crosswinds are sustained, appropriate forward-looking monetary policy should respond to keep the economy as close as possible to our dual-mandate objectives of maximum employment and price stability,” Clarida said.
Clarida’s comments mirror that of Fed Chair Jerome Powell who recently preached patience and adaptability with respect to interest rate policy.
“As always, there is no preset path for policy,” Powell said. “And particularly with muted inflation readings that we’ve seen coming in, we will be patient as we watch to see how the economy evolves.”
Powell’s latest comments came after U.S. equities finished their worst year in over a decade. The Dow fell 5.6 percent, while the S&P 500 lost 6.2 percent and the Nasdaq Composite fell 4 percent.
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