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Federal Reserve watching potential economic risks: official

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The US economy is on track for solid growth with strong hiring and low inflation but the central bank is watching for any risks and will react if needed, a Federal Reserve official said on Thursday.

[WASHINGTON] The US economy is on track for solid growth with strong hiring and low inflation but the central bank is watching for any risks and will react if needed, a Federal Reserve official said on Thursday.

Despite an increasing number of predictions from economists that the central bank will have to cut interest rates later this year or in early 2020 to stimulate the economy, Fed Vice-Chairman Richard Clarida was upbeat about the outlook.

However, he stressed policymakers will change their course if needed.

"The economy is in a good place," Mr Clarida said in a presentation at the Economic Club of New York.

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"However, let me be very clear: We're attuned to potential risks to the outlook," he said.

"And if we saw a downside risk to the outlook, then that would be a factor that could call for a more accommodative policy."

He noted that the Fed committee that sets benchmark lending rates believes it has nearly achieved the goal of full employment and price stability and can be patient before making any further moves.

The Fed raised interest rates four times last year but, with GDP expanding by 3.1 per cent in the first quarter of 2019, economists have been warning about indications US growth may have peaked.

Mr Clarida acknowledged inflation has been softer than the Fed's two per cent objective, though that could be partly due to transitory factors.

Stock markets have been shaken in recent weeks due to increasing trade tensions with China, causing investors to stream into safer Treasury debt, which can be an early warning of a possible recession.

Mr Clarida noted that forecasts for global growth are more pessimistic and if world growth slows that "does show up in our data," but he said the Fed is watching those signs too.

AFP