Powell: US economy and banks seem sturdy but face some risks

Wall Street rallies after Powell says policy rate near neutral

Wall Street rallies after Powell says policy rate near neutral

But many economists warn that by attacking the Fed for raising rates, Trump is actually putting pressure on the central bank to raise rates to demonstrate its independence from political considerations.

A few participants also expressed reservations about the timing of the next rate hike, suggesting that the benchmark rate - which determines the cost of borrowing on credit cards, mortgages and other loans - may now "be near its neutral level" and "further increases" could slow down the economy's expansion.

In a speech to the Economic Club of New York, Mr 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 - that is, neither speeding up nor slowing down growth".

In remarks this week Fed chair Jerome Powell seemed to point to a possible pause in rate hikes as early as next year when he said rates were "just below" some estimates of the neutral rate that could serve as a temporary stopping point as the central bank assesses the impact of its policy changes so far.

While markets still expect a rate hike in December, Mr Powell said, "there is no preset policy path".

But policymakers also say they may soon begin to give the public fewer clues about their plans, striking language from future statements about "further gradual increases" and instead keeping a close eye on developments in the economy. "In addition, the effect of a stronger dollar and weaker foreign economies on trade could affect the creditworthiness of US firms, particularly exporters and commodity producers". That contrasted with a remark Powell made in October that the Fed's policy rate was still well below neutral.

Powell also revealed the economic growth coincides with inflation, and the Fed's annual goal of 2 percent interest rate increases. 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. The Federal Reserve has been raising interest rates as the US economy picks up. His remarks Wednesday appeared to suggest to this audience that he might stop sooner or move more slowly.

In an interview this week with The Washington Post, Trump said he was not happy with Powell's support for further rate hikes. While interest rates were gradually moving to a neutral point, "we're a long way from neutral at this point, probably".

There wasn't much of a reaction in the financial markets on Thursday to the minutes from the Fed's early November meeting. To date, markets have considered quarter-end meetings in March, June, September and December as "live" meetings that result in rate changes.

Tom Porcelli of RBC Capital Markets said investors were wrong to interpret Powell's words as "dovish". Some want to see evidence that job growth is slowing, holding the unemployment rate at its current low levels, before they pause rate increases.

"Over the past year, firms with high leverage and interest burdens have been increasing their debt loads the most", Mr. Powell said.

Neither Clarida nor Powell said definitively whether rate hikes should stop at neutral, and each stressed that level was very hard to estimate.

In November, Fed policymakers agreed to hold rates steady, leaving the benchmark rate unchanged in a range of 2% and 2.5%. Some analysts are now saying the Fed may decide to raise rates only once or twice in 2019.

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