The decision by the U.S. Federal Reserve to stop raising interest rates — possibly for the rest of the year — does not mark a U-turn in American monetary policy, said Jacob Frenkel, chairman of JPMorgan Chase International.
The Fed decided on Wednesday to hold interest rates steady and indicated that no more hikes will come this year. The central bank downgraded its forecast for economic growth in the U.S.: Gross domestic product is now expected to grow by 2.1 percent, down from an earlier estimate of 2.3 percent and last year's 2.9 percent.
U.S. stocks initially rallied as traders welcomed the Fed's easier monetary stance, which typically supports stock prices. But share subsequently tumbled as investors grew increasingly wary of the central bank's cautious economic projections.
"I don't believe that their assessment about the medium and long term has changed," he said.
"To put it differently, the Fed said: 'You know what, let's be patient in assessing where we go. We do not change the direction — in fact we believe that we will continue to raise rates next year maybe at a slower pace.' So that's the modification I see in it: It's not a U-turn, it's changing the speed along the same trajectory," said Frenkel, who was the governor of the Israeli central bank from 1991 to 2000.
The outlook for the U.S. economy took a turn at the end of last year, according to Frenkel. Then, additional uncertainties emerged in the form of slower-than-expected recovery in Europe, global trade tensions and heightened geopolitical risks.
Frenkel said the rise in populism in Europe is a major economic threat to the region. He cited the examples of the U.K.'s impending exit from the European Union and the "yellow vest" protests in France.
"What I worry (about) most is Europe. Europe is not only Brexit. There is a common element to Brexit, to the yellow vests in France ... they're all long-term " effects of globalization, he said. "We did not make sure that the benefits are shared by all. It laid the foundations for populism."
Many economists have warned that events such as Brexit and the French protests could hurt the respective economies at a time when recovery is looking increasingly fragile.