Fed chair says economy is in ‘good health’ despite risks

Wall Street rallies after Powell says policy rate near neutral

And a "couple" said the Fed might be near the neutral rate, meaning more rate hikes "could unduly slow the expansion", driving down inflation.

Powell said in a speech Wednesday to the Economic Club of NY that the Fed is monitoring potential vulnerabilities in the banking system to ensure its continued stability.

In his NY speech Wednesday, Powell did not dispute the widely held belief that the Fed will raise interest rates again in December, saying, "There is no preset policy" about tightening. Stocks swooned on those remarks as investors bet the USA central bank would need more rate hikes to prevent the economy from overheating.

"We also know that the economic effect of our gradual rate increases are uncertain, and may take a year or more to be fully realized", Powell said in NY.

Some members noted the further appreciation of the United States greenback could also pose as a downside risk to the economy.

Minutes of the U.S. central bank's November 7-8 meeting showed "almost all participants" agreed that another rate hike would likely be necessary "fairly soon".

Stocks and interest-rate futures jumped, even while economists wrestled to interpret whether Powell meant to send a message or was simply misunderstood.

Powell offered few clues on how much longer the US central bank would raise interest rates in the face of a slowdown overseas and market volatility at home.

But Powell also noted a number of looming risks, including the slowdown in global growth and the fading economic benefits of the tax cuts and government spending boost that took effect this year as well as the cumulative effect of the Fed's own rate hikes.

Although a December rate hike has been widely expected, the Fed's path next year has been more uncertain, with investors last month expecting two or even three rate hikes in 2019.

The US central bank chairman has repeatedly tried to advise investors not to read too deeply into the Fed's economic forecasts, saying policymakers often don't have the ability to see that far into the future and decisions are formed based on incoming data from markets, the economy and business contacts. While interest rates were gradually moving to a neutral point, "we're a long way from neutral at this point, probably". His remarks Wednesday appeared to suggest to this audience that he might stop sooner or move more slowly. Any such slowdown - or pause - in its rate hikes would be welcome news for a stock market that has been battered by fears that the Fed's continued credit tightening could end the long bull market.

The Fed is still likely to raise rates in December.

"Powell said nothing to suggest that he or the majority of the FOMC think they'll be able to stop at the bottom of the range, after just one more hike", said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

Markets are now trying to divine Powell's plans from data pulling in two directions - rising wages that could be a precursor to inflation, for example, compared to slowing growth and falling oil prices that may keep inflation down, or other indicators clouding the picture.

"What do you do?" said Powell in NY.

And Powell repeated the view that the current level - at 2.25% - is "just below" the estimate of neutral, a rate that neither stimulates nor restrains the economy.

"It removes concerns of a Fed dead set on tightening up to a point where rates would intentionally slow down the economy", said Roberto Perli, an analyst at Cornerstone Macro, in a report Wednesday.

"There is a great deal to like about this outlook", Powell said Wednesday.

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