Published: Sat, December 01, 2018
Finance | By Kristine Clayton

Fed Chair’s comments on slower hikes to boost EMs

Fed Chair’s comments on slower hikes to boost EMs

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

According Reuters, 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.

Powell unnerved investors on October 3 when he said in an unscripted comment that Fed policy probably was "a long way from neutral" and might eventually have to turn restrictive.

Powell remains upbeat on the economy, forecasting continued solid growth, low unemployment and inflation near the Fed's 2 percent target.

In the meantime, the stock market is breathing easier, now that the Fed doesn't have as far to go on its rate-raising program as earlier feared.

He also explained the Fed's inaugural report on the stability of the USA financial system, released earlier Wednesday, noting that the central bank did not see "dangerous excesses" in stock markets.

Powell's comments sparked a surge in a stock market that had struggled of late and came in the wake of repeated criticism of the Fed's rate increases by President Donald Trump. In the past when reporters have raised the issue of the president's complaints, Powell has said they would have no effect on the Fed's rate policy.

Markets have been jittery in the lead up to a critical meeting on Saturday between Trump and his Chinese counterpart, Xi Jinping, at the G20 summit in Buenos Aires.

The Fed chief said in his speech that interest rates remain "low by historical standards" and still provide stimulus to the economy.

The minutes said that such a change would help to convey "the Committee's flexible approach in responding to changing economic circumstances", while market supposed that this could indicate possible changes for the Fed's rate hike decisions in 2019.

He said of Mr Greenspan, who had originally been appointed by Ronald Reagan in 1987: "I reappointed him and he disappointed me". The Fed's benchmark federal-funds rate since then has been between 2% and 2.25% - or just below the lowest estimate. But after that, officials said further hikes would not be on a preset course.

And he said economists estimated the Fed's policy rate - at 2.25 per cent - was "just below" the estimate of neutral, a rate that neither stimulates nor restrains the economy. It followed several weeks of market volatility that some investors had blamed on uncertainty over the Fed's intentions, among other things.

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.

A few officials expressed concern about rates moving too high too quickly.

The Fed has raised rates three times this year and says the current economy is in strong shape. "We already passed that, as the housing market shows", he said on CNBC, referring to this year's steady decline in home sales and construction - something analysts partly blame on higher mortgage rates.

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