Fed Chief's Remarks On Economy And Interest Rates Cheer Investors

US Fed chairman hints at higher rates following Trump attack

Treasury yields fell overnight following comments from Federal Reserve Chair Jerome Powell which signaled that an end to the bank's interest-rate hike cycle may be closer than previously suggested, leaving yields lower on Thursday morning. He also noted that the economy had yet to feel the full impact of the hikes.

Trump has repeatedly attacked Powell for continuing to raise the benchmark lending rate, which Trump says undermines the work he is doing to juice the United States economy. But after that, officials said further hikes would not be on a preset course. What he actually said was that rates are "just below the broad range of estimates of the level that would be neutral". "Not even a little bit".

The benchmark Dow Jones Industrial Average powered 2.5 per cent higher, turning positive for the year after steep recent losses. The president has blamed the Fed for the steep two-month fall in the stock market and the possibility that his efforts to boost growth with a major tax cut will be thwarted by rising interest rates. Commodity-producing and emerging countries led gains among currencies as traders bet the greenback may be close to its peak. The S&P 500 Index gained 61.61 points, or 2.3%, to 2,743.78.

Powell also revealed the economic growth coincides with inflation, and the Fed's annual goal of 2 percent interest rate increases. He subsequently put pressure on Burns to keep interest rates down in the hope that unemployment would remain low in the run-up to the 1972 presidential election. The current system relies on the Fed paying interest on some reserves to set the federal funds rate.

But he cautioned that things could turn out a lot differently than the Fed expects.

The last two recessions were triggered when asset bubbles burst, and critics said the Fed should have done more to control the financial system.

On Wednesday, Mr. Powell pointed to the range of neutral-rate projections submitted by 15 Fed officials at their policy meeting in September, varying from 2.5% to 3.5%. Bloomberg Economics anticipates three increases.

"My FOMC colleagues and I, as well as many private-sector economists, are forecasting continued solid growth, low unemployment, and inflation near 2 per cent", Powell said in the speech. Ian Shepherdson of Pantheon Macroeconomics wrote that he didn't see Powell as "signaling any impending change" in policy makers' dots.

That contrasted with a remark Powell made in October that the Fed's policy rate was still well below 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 political independence. And they dumped stocks in response. "This was again on display today", RBC Capital Markets chief US economist Tom Porcelli wrote in a note.

In his speech, Powell also explained the Fed's inaugural report on the stability of the USA financial system, released earlier Wednesday.

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