Powell Comments Suggest Fewer Rate Hikes Next Year

Gladys Abbott
November 30, 2018

If the Fed, as expected, raises the fed-funds rate next month to a band between 2.25% and 2.5%, that would leave it touching the bottom of the range of neutral estimates but four more quarter-percentage-point increases from the top. After mid-year, Ashworth said he expects that "a slowdown in economic growth to below potential forces (the Fed) to the side lines". "Our gradual pace of raising interest rates has been an exercise in balancing risks".

Mr. Powell didn't provide any more guidance on the likely path for rates, and he noted they remain low by historical standards.

Fed Vice Chairman Richard Clarida gave an important talk Tuesday on how the central bank should react to new information.

Powell has dismissed the unprecedented political attacks from Trump, saying they have no influence on deliberations of the independent central bank.

Minutes of the November 7-8 meeting of the Fed's rate-setting body, the Federal Open Markets Committee, show that officials expressed concerns about a variety of threats, including the impact of tariffs, a slowing global economy and tightening financial conditions amid falling stock prices.

In its most recent projections, the Fed forecast that it would raise rates in December for the fourth time this year, followed by three more hikes in 2019.

Speaking to the Economic Club of NY, the chairman also suggested that interest rates appear to be just below the level the Fed calls "neutral", where they are thought to neither stimulate growth nor impede it. But signs of a slowdown overseas and almost two months of market volatility - including a sharp sell-off in equities last week - have clouded an otherwise rosy picture of the USA economy.

Wall Street rallied a day earlier as comments from Fed Chair Jerome Powell signaled to many investors that the Fed's three-year tightening cycle could be drawing to a close.

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Trump's blunt public criticism of the Fed is without precedent.

"I'm doing deals, and I'm not being accommodated by the Fed", Trump told The Washington Post this week.

"As always, our decisions on monetary policy will be created to keep the economy on track", he said.

"I don't see this month's reading as a reason to step away from normalizing policy or change their overall view of the US economy". A full term on the seven-member Fed board lasts 14 years - a lengthy period that was seen as liberating Fed officials from any fear that their rate decisions might cost them their jobs.

Faced with this barrage of criticism, Mr Powell appears to be taking a more dovish line, which is why all of the main United States stock indices rose sharply on Wednesday night.

While he acknowledged the growing concern over increased borrowing by businesses that already carried a high debt load, he said that for now they were "unlikely to pose a threat to the safety and soundness" of the system in the event of a downturn.

Still, he judged the area posed little systemic risk, labeling broader, overall risks to financial stability as "moderate".

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