Fed's Powell: Outlook 'favorable,' steps to address money market volatility coming 'soon'

Jerome Powell listens to feedback during a panel at the Federal Reserve Board Building in Washington. On Tuesday Oct. 8 Powell is scheduled to speak about the Fed’s interest rate policy

With regard to monetary policy, Powell reiterated his pledge to "act as appropriate" to support continued growth, a strong job market, and inflation moving back to the Fed's symmetric 2 percent objective.

At the Fed's last meeting 7 of 17 policymakers indicated they felt rates would likely need to be reduced by another quarter of a percentage point by the end of the year, and markets have priced in such a move.

"The Fed will soon announce measures to add to reserves supply over time". Other recent economic data, including a possible contraction in manufacturing, add to the sense of a slowing economy.

The Fed responded by conducting temporary open market operations, which Powell said kept the federal funds rate in the target range and alleviated money market strains more generally. When it goes down, those interest rates usually follow suit.

Powell also used his speech to let markets know the central bank would soon begin allowing its balance sheet to expand to ensure smoother functioning of USA short-term funding markets. Traders in federal funds futures are betting that the Federal Open Market Committee will reduce rates again at its October 29-30 meeting from the current target range of 1.75% to 2%.

The three-year note auction drew a high yield of 1.413 percent and a bid-to-cover ratio of 2.43, while the ten previous three-year note auctions had an average bid-to-cover ratio of 2.49.

He said the actions the Fed has already taken "are providing support for the outlook", which remains favorable but faces risks, principally from global developments such as trade and Britain's pending withdrawal from the European Union.

"This volatility can impede the effective implementation of monetary policy, and we are addressing it", he added.

Federal Reserve Chairman Jerome Powell paid tribute to one of his predecessors by emphasizing the importance of an independent central bank that is not influenced by partisan pressures.

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.

Mismeasurement of productivity may have actually understated growth in gross domestic product in recent years, Powell said.

The use of "big data" may help produce more accurate real time employment measures in the future, Powell said.

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