Stocks markets surge on hint of slower rate hikes

Fed chair Jerome Powell softens line on interest rate rises after Trump attack

The minutes of the Fed's November 7-8 meeting showed 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.

"A couple of participants noted that the federal funds rate might now be near its neutral level and that further increases in the federal funds rate could unduly slow the expansion of economic activity and put downward pressure on inflation and inflation expectations", said the minutes.

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

In recent weeks, President Donald Trump has repeatedly attacked the Fed - and Powell personally - for their rate increases, which the president has blamed for any economic weaknesses or stock market turmoil.

Mr Trump added: "I'm not happy with what he [Mr Powell] is doing at all.it nearly looks like he's happy raising interest rates".

Is the entire U.S stock market in a bubble?

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.

"Several participants were concerned that the high level of debt in the nonfinancial business sector, and especially the high level of leveraged loans, made the economy more vulnerable to a sharp pullback in credit availability", the minutes said.

"We know that things often turn out to be quite different from even the most careful forecasts", Powell said at an Economic Club of NY luncheon on Wednesday.

He told an audience in NY on Wednesday, "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".

On Wednesday, Mr Powell also emphasised these uncertainties. The S&P 500 and the Nasdaq Composite also jumped over 2 percent a piece. That comment had unsettled investors who feared that it meant the Fed would need a number of further hikes to get to neutral. Trump tapped Powell previous year to be Fed chairman after he decided against giving Janet Yellen a second term. "This was again on display today", RBC Capital Markets chief USA economist Tom Porcelli wrote in a note.

The Fed has already raised United States interest rates three times this year, and the next rate hike is expected at its next policy meeting in mid-December. The December CPI will be low and even negative and the rate of annual inflation will reach the lower range of the price stability target set by the government, which will signal a wait until the next rate hikes.

Stock markets began a broad descent toward a correction - a decline from the most recent peak of at least 10 percent - in early October, just after Powell had sounded a quite confident tone on the economy. Since then, he and other Fed officials have sounded a bit more cautious, nodding to a slowdown in Europe, Japan and China.

Just on Tuesday, Fed Vice Chair Richard Clarida, in a speech to numerous same economists and investors in NY, used precisely the same language to describe the policy rate as "just below" the range for neutral. But after that, officials said further hikes would not be on a preset course.

But other participants preferred a wait-and-see approach, noting that the future held "upside" and "downside" risks, such as slowing global growth on one hand and faster inflation on the other.

Related:

Comments


Other news