The market now loves Jay Powell

The market now loves Jay Powell

In recent weeks, President Donald Trump has repeatedly attacked the Fed - and Powell personally - for their rate increases, which the president has blamed for any economic weaknesses or stock market turmoil.

In other words, the Fed is going to be doing fewer rate hikes in the coming years than they've done over the last few, but Powell's comments do not necessarily indicate the overall path for policy will be revised down.

Some policymakers agreed with the idea of further rate increases, but also "expressed uncertainty about the timing". The president has even gone so far as to call the Fed's rate hikes "loco" and said in Tuesday's interview that "the Fed is a much bigger problem than China".

Stock markets turned higher after release of the Fed minutes, continuing a rally begun on Wednesday when Fed chair Jerome Powell seemed to signal a possible shift in tone. Rather, he said, the Fed will assess the most recent economic and financial data in deciding whether or how fast to keep raising rates. But signs of a slowdown overseas and almost two months of market volatility have clouded an otherwise mostly rosy United States picture in which the economy is growing well above potential and unemployment is lowest since the 1960s.

Powell noted that rates remain relatively low and that they are just below what many economists consider "neutral for the economy - that is, neither speeding up nor slowing down growth".

For next year, the central bank has suggested that it plans three rate hikes.

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.

More news: Outrage after first women's Ballon d'Or victor Ada Hegerberg asked to twerk

While the speech had "cleaned up after Powell's sloppy language last month", markets may have reacted too strongly to the comments, said Ed Al-Hussainy, senior rates analyst at Columbia Threadneedle Investments.

As he did at an appearance earlier this month, Powell cited strong annual economic growth above 3 percent and unemployment at a near five-decade low of 3.7 percent.

Mr Powell's comments appear to implicitly reject arguments from President Trump that past interest rate rises have been a mistake.

Powell, in remarks just two weeks ago, had listed three possible challenges to growth in 2019: slowing demand overseas, fading fiscal stimulus at home and the lagged economic impact of the Fed's past rate increases. There was also concern that they could cause the economy to slow down excessively.

"I'm not dancing or partying right at the moment", he said, adding that the Fed has talked about gradual rate hikes "for a very long time". "The market is putting too much weigh on the dovish arguments here; I don't think that is what he meant to signal". We also know that moving too slowly - keeping interest rates too low for too long - could risk other distortions in the form of higher inflation or destabilising financial imbalances. In October, he said rates were still well below neutral.

Currently, the Federal Open Market Committee forecasts three quarter-point hikes for next year after a December increase, which is virtually guaranteed.

Related Articles