Fed chairman: USA economy healthy and rate hikes arent automatic

Devin Lawrence
December 3, 2018

A mistake in communication may have made investors think the Federal Reserve is adopting a looser monetary policy, following a speech by chair Jerome Powell on November 28.

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

The remarks seemed more dovish than his comments in early October that the USA central bank had a long way to go before interest rates hit neutral, indicating that more hikes could be on the horizon. So far, he was "not even a little bit happy" with his selection of Powell as its chairman. Next year, investors will hear from Powell after all 8 of the Fed's policy meetings, giving the markets even more chances to test their faith in the Fed chair.

Powell's comments came as speculation was already mounting that the US central bank might considering pausing its hiking cycle amid slowing global growth and increased market volatility.

Speaking at the Economic Club of NY on November 28, Jerome Powell outlined the Fed's decision to slow or pause interest rate movements in 2019 and would continue to monitor the nation's financial stability.

"Our gradual pace of raising interest rates has been an exercise in balancing risks", Mr Powell said.

Throughout October and into this month, partly in response to Powell's October 2 remarks and concerns over the impact of the trade war with China, the stock market experienced significant falls. On Wednesday he referenced a range, and in October he likely referenced a median. The S&P 500 index rose by 2.3 percent, jumping by a full percentage point immediately after Powell's speech.

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Trump's blunt public criticism of the Fed is without precedent.

Powell's dovish shift in language came as U.S.

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. "Almost all participants expressed the view that another increase in the target range for the federal funds rate was likely to be warranted fairly soon" if employment and inflation remain in-line or stronger than the Fed's current expectations, the minutes said.

Powell's comments pushed USA stocks rocketed to their biggest gain in eight months. Since then, he and other Fed officials have sounded a bit more cautious, nodding to a slowdown in Europe, Japan and China.

The contract's price was last up 4.5 basis points to the highest since early September and carried an implied yield of 2.70 percent.

"Many baby boomers like me are, however, reaching an age where a good report is, 'Well, there are a number of things we should keep an eye on, but all things considered you are in good health, '" said Powell. Those increases have raised its benchmark rate to a still-historically-low range of 2 per cent to 2.25 per cent. "Potential growth for supply is very limited and demand remains robust even though we've seen a decline in auto sales in China and a slowdown in vehicle sales in the United States", said Suki Cooper, precious metals analyst at Standard Chartered Bank.

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