Fed's Powell says forward guidance held down rates, helped economy

LONDON, June 6 Fri Jun 6, 2014 4:50am EDT

LONDON, June 6 (Reuters) - Federal Reserve Governor Jerome Powell said on Friday that the U.S. central bank's forward guidance on interest rates has boosted the U.S. economy by keeping medium- and long-term borrowing costs lower than they otherwise would have been.

In brief remarks prepared for delivery at a central banking conference in London, Powell said the Fed's evolving statements about the future path for rates have played an important role in shaping market expectations about U.S. monetary policy.

With the overnight federal funds rate stuck near zero for years, he said the management of expectations has been important in allowing investors to buy and sell bonds with confidence that rates would not unexpectedly increase.

That, for example, has lowered the premium charged for longer-term loans, and helped tamp down volatility as well, Powell said.

"Forward guidance has generally been effective in providing support for the economy at a time when the federal funds rate has been pinned at its effective lower bound," said Powell, who is awaiting Senate confirmation to a new 14-year term on the Fed board.

He did not comment explicitly on the likely path of Fed policy or the state of the U.S. economy in his prepared remarks. Powell did say, however, that markets were "well aligned" with the guidance the central bank has offered about the likelihood its asset purchase program would be shuttered by year-end. (Reporting by Marc Jones; Writing by Howard Schneider in Washington; Editing by Lisa Shumaker)