Fed officials express caution about pace of future hikes

Fed officials express caution about pace of future hikes

Powell noted that rates are "just below neutral" and that "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 - that is, neither speeding up nor slowing down growth". Investors interpreted his remarks as evidence that the Fed might consider pulling back from quarterly rate hikes.

His speech to the Economic Club of NY sent markets soaring more than 600 points on Wednesday. That could fall to two when officials update those forecasts at their December 18-19 meeting, Wrightson ICAP LLC chief economist Lou Crandall said.

In an interview this week with The Washington Post, Trump said he was not happy with Powell's support for further rate hikes.

But Fed officials also raised the prospect they could slow plans to raise rates next year, and discussed how to signal to investors that they would stay flexible "in responding to changing economic circumstances".

The current system relies on the Fed paying interest on some reserves to set the federal funds rate.

The Fed fund futures contract expiring in January 2020, a heavily traded contract that reflects market expectations for where rates will be at the end of 2019, rallied sharply on record volume and pointed to an implied yield of 2.7 per cent.

"If the USA economy is creating 200,000 jobs a month, month-after-month, we're not at maximum employment", Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, told CNBC. Rather, we assume that Powell wanted to prepare the markets for a change in the central bank's communication.

"A couple of participants noted that the federal funds rate might now be near its neutral level and that further increases in the federal funds rate could unduly slow the expansion of economic activity and put downward pressure on inflation and inflation expectations", said the minutes.

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On Wednesday, Powell also emphasised these uncertainties.

"If you look down the road, you see challenges ahead, and they're challenges that are typical in a cycle", said Powell speaking earlier this month at the Federal Reserve Bank of Dallas.

Powell also revealed the economic growth coincides with inflation, and the Fed's annual goal of 2 percent interest rate increases. "Not even a little bit. I think that's what we've been doing".

The Fed takes equally seriously the risks of hiking too quickly and shortening the economic expansion, and on the other hand of hiking too slowly and prompting higher inflation or financial instability, Powell said. He kept up his criticisms with Powell on Tuesday, saying rising interest rates have hurt the economy.

"There is a great deal to like about this outlook", said Powell on Wednesday. Three of those increases have been under Powell.

The Fed is poised to raise rates again at its next policy meeting in mid-December and to continue raising rates next year, according to the minutes of the Fed's most recent meeting released on Thursday.

The minutes flagged the possibility that the Fed will make another adjustment to maintain control of the policy rate, by adjusting the separate interest rate on excess reserves, or IOER, which is now set at 5 basis points below the upper bound of the federal funds target range.

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