Trump is the biggest threat to the Fed's independence since 1970

Trump is the biggest threat to the Fed's independence since 1970

That contrasted with a remark Powell made in October that the Fed's policy rate was still a "long way from neutral".

In its report, the Fed warned that markets and financial firms will need to continue to adjust to plans for future rate hikes after years of low interest rates following the financial crisis. For the stock market, he emphasised that current valuations are broadly in line with the long term levels and do not see "dangerous excesses" in equities.

The Fed said that nearly all of its policymakers agreed that "a gradual approach to policy normalization remained appropriate" in its newly released minutes of the Federal Open Market Committee (FOMC) meeting which was held from November 7 to November 8.

Some have speculated that Trump might try to oust Powell, who was his hand-picked choice to lead the Fed.

Jerome Powell, chairman of the Fed said on Wednesday that the interest rates "are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy".

"Neutral" means the rate neither stimulates nor drags on economic growth.

USA stock markets jumped following the comments, as investors interpreted them to mean the central bank was close to the end of its tightening cycle.

More news: World leaders gather ahead of G20 meeting

The possible policy shift occurred at a meeting at which the Fed also resumed debate on how best to manage short-term interest rates in the future, a decision that could influence the final target size of the Fed's still-massive balance sheet. Many people, including Trump, say they are hopeful the two leaders will reach a breakthrough and avoid further tariffs.

But many economists warn that by attacking the Fed for raising rates, Trump is actually putting pressure on the central bank to raise rates to demonstrate its political independence.

In his speech to the New York Economic Club, Powell again stressed that there was "no preset policy path" for interest rates and said the central bank had moved gradually, since "moving too fast would risk shortening the expansion".

The Fed chairman said the central bank is monitoring potential vulnerabilities in the banking system to ensure its continued stability.

"We still expect the Fed to hike rates twice in the first half of next year, before a slowdown in economic growth to below potential forces it to the side lines", Paul Ashworth, chief USA economist at Capital Economics, wrote in a note. Investors have been bracing for higher interest rates in the face of possible inflation stemming in part from Trump's trade wars as well as the tax cuts he pushed through Congress late previous year.

"I'm doing deals, and I'm not being accommodated by the Fed", Trump said. "We already passed that, as the housing market shows", he said on CNBC, referring to this year's steady decline in home sales and construction - something analysts partly blame on higher mortgage rates.

Policy makers provisionally penciled in three quarter-percentage-point rate increases for next year, according to the median of forecasts released in September's so-called dot plot.

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