Federal Reserve

Fed's Quarles: Fed watching data but will not react to 'every wavering'

Key Points
  • Federal Reserve vice chairman Randal Quarles said the Fed's increasing "data dependence" does not mean it will react to every change
  • They will only react to "significant changes in direction."
Federal Reserve Vice Chairman for Supervision Randal Quarles addresses the Economic Club of New York in New York City, October 18, 2018.
Brendan McDermid | Reuters

Federal Reserve vice chairman Randal Quarles said the Fed's increasing "data dependence" does not mean it will react to every rise or fall in economic statistics or markets, but only to "significant changes in direction."

After a week in which markets have swung in their interpretation of where the Fed is heading, Quarles appeared to anchor the Fed's move towards slowly but steadily continuing to raise interest rates.

"We should be data dependent but not reacting to every wavering of the needle across the dial...We have described in all the communications tools a path that is pretty clear," Quarles said. "We are following a strategy and taking account of data over time as it comes in and in response to significant changes in direction."

That path currently has the Fed raising rates later this month and throughout 2019, an interpretation some investors have called into question given the recent focus of policymakers on weakening global growth and other recent data.

Stock markets in particular rose dramatically last week after construing remarks by Fed chair Jerome Powell to mean that the central bank may be nearer than thought to pausing the cycle of rate increases it began in late 2015.

But Quarles, repeating what has become a theme of the Powell Fed, emphasized that discussion of a possible stopping point puts too much emphasis around the concept of the "neutral" rate of interest, a notion he feels is not useful as a precise guide to appropriate policy as economic conditions become more normal.

It cannot be precise, may be changing over time, and "its utility as the central organizing thought around how you are conducting monetary policy becomes less," Quarles said.

His comments, after weeks in which markets have both dropped dramatically and climbed based on perceptions of where rates are in comparison to "neutral," are part of Powell's so far choppy effort to downplay the concept -- discounting its usefulness but continuing to refer to where policy stands in relation to it.

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Key Points
  • Treasury Secretary Steven Mnuchin says President Trump was pleased with Fed Chairman Jerome Powell's speech last week on interest rates.
  • Powell said rates are "just below" neutral, easing investor worries about a more aggressive interest rate .