This article was posted on Monday, Apr 01, 2019

Fed Chair Jerome Powell recently used the “patient” word again.  He also added new words that the Fed can “wait and watch” before raising rates again. And he added another new word, that whenever interest rate increases resume, they will be “gradual.” The stock markets loved it!

There are growing calls for President Trump and Congress to reform the Fed, and there are some good reasons for it. There could be broad bipartisan support if the president decides to pursue it.

Powell Repeats: The Fed Can Be “Patient” On Rate Policy

For the second time, Fed Chairman Jerome Powell reiterated that the central bank now feels it can be “patient” with regard to additional interest rate hikes this year. He first used that word on January 4th while speaking at the American Economic Association conference in Atlanta.

At that time, he said that while theU.S.economy is strong, the global economy is slowing, and this concerns the Fed. He added thatU.S.inflation remains quite low. Together, a slowing global economy and very low inflation allow the Fed to reduce the number of rate hikes this year. Markets rejoiced at this apparent reversal of policy and stocks rallied strongly last week.

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Then he used the patient reference again last Thursday, speaking at The Economic Club in Washington,DC and added some other language that boosted the stock markets. Powell said the central bank can pause its rate hike policy as the Fed “waits and watches” to see if theU.S.economy will slow down this year or continue the strong recovery that began last year.

Meanwhile, several other senior Fed officials began to use the patient language in their speeches around the country, thus confirming that the Fed has shifted policy at least for now.

The question is: What has happened to make the Fed soften its monetary policy on interest rates? You may recall as recently as late November that Powell and other Fed officials were considerably more hawkish, suggesting another three to four rate hikes this year.

Fed Open Market Committee

Our best clue in figuring this out is the minutes of the last Fed Open Market Committee (FOMC) meeting on December 18-19, which were recently released to the public. Early-on in that meeting, the members discussed the possibility that the upward move in the Fed Funds rate could be “gradual,” another comforting word for the stock markets.

Elsewhere in the minutes, there was a discussion suggesting that most members of the Committee have shifted their thinking to a “more gradual path of federal funds rate increases.” OK, we get that. But why?

The minutes go on to reveal that most Committee members have grown more concerned about a variety of risks, both international and domestic, which include Brexit, financial instability in Italy, the slowing global economy and the growing risk of a trade war with China and others.

On the domestic side, the members feel that theU.S.economy will slow down this year, although not dramatically. They worry about the ongoing slump in the housing market. They voiced concerns about the continued flattening yield curve. They also pointed to the recent declines in oil and energy prices, suggesting this could reflect softening global demand. They also discussed the recent sharp decline in the stock markets.

The members concluded that the Committee had “some latitude to wait and see how the data would develop amid the recent rise in financial market volatility and increased uncertainty about the global economic growth outlook.” There you go – they’re worried.

Near the end, they added: “… based on current information, the Committee judged that a relatively limited amount of additional tightening likely would be appropriate.” In Fed-speak, that means we’re not going to raise rates three to four times this year, and we’re going to wait and watch for a while before we do anything. This was music to the markets’ ears.

Gary D. Halbert is the president and chairman of Halbert Wealth Management, Inc. His Forecasts & Trends Weekly E-Letter may be obtained free of charge by subscribing at