Fed's Powell, in apparent dovish shift, says rates near neutral

Powell defends Fed charge hikes amid Trump onslaught			 0					By		Marta Subat

Powell defends Fed charge hikes amid Trump onslaught 0 By Marta Subat

In remarks this week Fed chair Jerome Powell seemed to point to a possible pause in rate hikes as early as next year when he said rates were "just below" some estimates of the neutral rate that could serve as a temporary stopping point as the central bank assesses the impact of its policy changes so far.

Stocks and interest-rate futures jumped, even while economists wrestled to interpret whether Powell meant to send a message or was simply misunderstood.

Nearly all Fed officials at the meeting agreed another interest rate increase was "likely to be warranted fairly soon", but also opened debate on when to pause further hikes and how to relay those plans to the public.

Minutes of the U.S. central bank's November 7-8 meeting showed "almost all participants" agreed that another rate hike would likely be necessary "fairly soon".

"So far, I'm not even a little bit happy with my selection of Jay", Trump told The Washington Post."Not even a little bit".

In remarks delivered Wednesday in New York, Fed chairman Jerome Powell uttered words that set Wall Street on fire.

All eyes will now be on the Federal Open Market Committee's final gathering of this year on December 18-19 to glean further clues on what may happen. But signs of a slowdown overseas and almost two months of market volatility - including another sharp selloff last week - have clouded an otherwise mostly rosy US picture in which the economy is growing well above potential and unemployment is the lowest since the 1960s.

The central bank chief said his colleagues and many other economists "are forecasting continued solid growth, low unemployment and inflation near 2 per cent".

Still, Powell sent the stock market soaring by suggesting that interest rates are just below the so-called neutral rate at which they will neither boost nor slow growth.

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On Wednesday, Powell also emphasised these uncertainties. On Wednesday he referenced a range, and in October he likely referenced a median.

Fed raised its benchmark interest rate for the third time this year on September 26 and made the target range between 2 percent and 2.25 percent. Instead, officials suggested incorporating wording to emphasize a greater dependence on incoming data to govern future rate hikes. Trump tapped Powell previous year to be Fed chairman after he decided against giving Janet Yellen a second term.

And some economists say the markets misread Powell.

The general consensus is that a rate hike in December will most certainly occur as the CME Group's FedWatch Tool, an algorithm that calculates the probability of a rate hike in a given month, is now showing an 82.7% chance the Federal Reserve will institute a fourth rate hike to end 2018.

Mr Powell's nuanced comments eased investor concerns about 2019.

Stock markets began a broad descent toward a correction - a decline from the most recent peak of at least 10 percent - in early October, just after Powell had sounded a quite confident tone on the economy. At some point rates will cross into a neutral zone for the economy and then, if the Fed keeps pushing them up, they will become restrictive, slowing growth.

The minutes also revealed that Fed officials talked about modifying language in their policy statement, which now states that it expects "further gradual increases" in interest rates.

"The neutral rate is an absurd concept".

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