Fed rate hikes aren't automatic - Powell

Federal Reserve Chairman Jerome Powell speaks to the Economic Club of New York saying that interest rates remained

With the broad range of 2.5% to 3.5% and a current Fed Funds rate of 2% to 2.25%, this gives a median of 3 to 4 rate hikes of 0.25% before we hit Powell's target.

Nearly all Federal Reserve officials at their last meeting agreed another interest rate increase was "likely to be warranted fairly soon", but also opened debate on when to pause further hikes and how to relay those plans to the public.

The comments appeared to be something of a reversal from remarks Powell made in a PBS interview in early October, when he said rates were "a long way" from neutral.

Interest rate-sensitive financials dropped 0.8 percent, as USA 10-year Treasury yields continued to fall following the release of the Fed minutes. In the question-and-answer period following his speech, the Fed chairman agreed with the consensus view that monetary policy's goals should remain focused on low unemployment and stable inflation rather than targeting financial markets such as stocks.

The Fed said that nearly all of its policymakers agreed that "a gradual approach to policy normalization remained appropriate" in its newly released minutes of the Federal Open Market Committee (FOMC) meeting which was held from November 7 to November 8.

While he acknowledged the growing concern over increased borrowing by businesses that already carried a high debt load, he said for now they were "unlikely to pose a threat to the safety and soundness" of the system in the event of a downturn.

US President Donald Trump has repeatedly attacked Powell for raising the benchmark lending rate but the Fed chief and other officials say the attacks have no influence on the deliberations of the independent central bank (AFP

In what was seen as a shift in tone from remarks last month, Powell said Wednesday that the Fed's series of rate increases had brought policy to "just below" the range of estimates of neutral, where it neither spurs nor restricts the economy. The minutes and Powell's comments did have one thing in common, they both signaled a December interest rate hike.

Ian Shepherdson of Pantheon Macroeconomics said markets were reading too much into Powell's statement and with historically low unemployment, the Fed may have no choice but to keep raising.

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%. But after that, officials said further hikes would not be on a preset course.

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. Futures showed the amount of tightening priced in for 2019 slipped to 25 basis points - equivalent to just a single rate hike. But, when taken with the assessment of the Fed leader, it also holds the possibility of clouding the forecast for future rate hikes in 2019.

Essentially, it means rates are close to where he wants them to be, and investors are expecting fewer rate hikes to derail the bull market. Home sales, vehicle sales, business investment and other parts of the economy that are sensitive to interest rates have begun to soften, evidence that the Fed's eight rate increases since 2015 are changing household and business behaviour.




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