Powell Comments Suggest Fewer Rate Hikes Next Year

Powell Comments Suggest Fewer Rate Hikes Next Year

If you were surprised by Federal Reserve Chairman Jerome Powell's speech on Wednesday at which he hinted that rates were close to "neutral", you probably missed an earlier speech that offered a peek at the cards.

The S&P 500 index has fallen about 8 percent since early October, when Powell sounded a quite confident tone about the economy and the need for the Fed to avoid overheating.

Stocks surged on Wall Street Wednesday, powering a 600-point gain in the Dow Jones Industrial Average, after the head of the Federal Reserve hinted at slower interest rate increases.

"Our gradual pace of raising interest rates has been an exercise in balancing risks", Powell said during a speech at the Economic Club of NY.

Policymakers had provisionally pencilled in three quarter-point rate increases for next year, according to the median of forecasts released in September's so-called dot plot.

"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", Powell said. 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 past year.

During the interview, the president deflected blame for a slowing US economy, instead blaming Powell's decision to hike interest rates and other moves.

The Fed has raised its benchmark short-term rate, now in a range of 2 percent to 2.25 percent, three times this year and is expected to do so again next month.

But Wednesday's report stopped short of drawing "a bottom line conclusion" - a point Powell reiterated in his remarks, adding that the semiannual survey should be viewed as a routine checkup.

His shift follows criticism from US President Donald Trump who nominated him for the role past year.

"Our gradual pace of raising interest rates has been an exercise in balancing risks", Mr Powell said.

Trump followed this up with comments to the Washington Post. Current financial system vulnerabilities are at a "moderate level", the Fed has said.

"So far, I'm not even a little bit happy with my selection of Jay", he continued of Powell. On that basis, there has been some criticism of Trump for his attacks on its policies.

Powell's speech indicated that he is listening. At the same time, Powell says the financial system and markets appear far sturdier than they did before the 2008 crisis.

Matthew Cheslock, a trader at Virtu Financial, told CNNMoney editor-at-large Richard Quest on "Markets Now" Wednesday that the market interpreted Powell's comments as meaning that we are "closer to normal rates".

This was music to the ears of the Wall Street traders and speculators.

Earlier on Wednesday the Fed published its first-ever report devoted to financial stability, which warned that tensions over trade, the turbulent Brexit discussions, and trouble in China and emerging markets could rock a USA financial system where asset prices are "elevated" and business credit quality may be "deteriorating".

Related Articles