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m3n4.net December 13, 2018


Fed's Powell, in apparent dovish shift, says rates near neutral

01 December 2018, 01:37 | Vera Richards

Bloomberg

Bloomberg

Federal Reserve officials signaled they're adopting a more flexible approach in their gradual interest-rate increases after a likely December hike, as they try to sustain a USA expansion that may become the longest on record next year.

"Almost all participants expressed the view that another increase in the target range for the federal funds rate was likely to be warranted fairly soon if incoming information on the labor market and inflation was in line with or stronger than their current expectations", said the minutes.

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. The report aims to put on public display twice a year what the central bank is watching and how those parts of the market are behaving. That appeared to signal that while the Fed may raise interest rates again next month, it isn't overly concerned about inflation, assuaging fears among many investors that rates will continue to climb for the foreseeable future.

US Fed chairman hints at higher rates following Trump attack

United States stock markets moved sharply higher on the news.

The chairman of the US Federal Reserve gave a shot in the arm to Wall Street and cooled a conflict with President Trump yesterday by indicating that interest rates may not rise as quickly as expected. In the past when reporters have raised the issue of the president's complaints, Powell has said they would have no effect on the Fed's rate policy.

Powell was not asked about escalating criticism of him from President Trump, who has complained that rising interest rates are hurting the economy.

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Powell said "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". Not the outlook for the USA economy which, while expected to see a slower rate of growth in 2019, is still growing at a sufficient pace to justify further increases in the cost of borrowing. "We saw a good lift up in gold price close to the highs we've seen over the past few weeks", said Jonathan Butler, analyst at MUFG Investor Services. At the September meeting, the Fed signalled that it would likely raise rates one more time this year, and it projected three more rate hikes in 2019.

"There is no preset policy", he said.

"I'm doing deals, and I'm not being accommodated by the Fed", Trump was cited as saying in a Washington Post report based on the interview. And Narendra Modi, the Indian prime minister, has recently launched a series of attacks on the Reserve Bank of India for raising interest rates too quickly.

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

Fed-funds futures similarly are now pricing in only two more quarter-point rate hikes, including December's, with any certainty.

"The hint from the Fed that they are closer to ending the current rate hike cycle caught the markets somewhat by surprise". But some economists say three rate increases for next year are beginning to look less certain.

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