ibusinesslines.com
ibusinesslines.com December 17, 2018


Trump effect? Fed's Jerome Powell turns dovish, says rates near neutral

30 November 2018, 04:46 | Kelvin Horton

US Fed chairman hints at higher rates following Trump attack

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

Federal Reserve officials signaled they're adopting a more flexible approach in their gradual interest-rate increases after a likely December hike, as they try to sustain a USA expansion that may become the longest on record next year.

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%.

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.

Minutes released on Thursday from the Fed's November 7-8 policy meeting showed disagreements about the path of interest rates, with some policymakers worrying that tightening too fast could stem economic growth.

In an interview Tuesday with the Washington Post, the president complained bluntly and at length about Powell, who was Trump's hand-picked choice to lead the Fed. "They're making a mistake because I have a gut, and my gut tells me more sometimes than anybody else's brain can ever tell me".

US President Donald Trump has repeatedly slammed the Fed chair for raising rates too often. Prico Risk Management and Investments CEO Yossi Fraiman said, "We believe that the Bank of Israel's raising of interest will be very cautious due to the sharp fall in energy prices, which will moderate the rate of inflation".

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

"If there has been one certainty of late it is the market's ability to misinterpret Fed Chairman Powell". His predecessors in the White House took care not to directly or publicly attack the central bank's rate policy. With the Dollar seen weakening as investors scale back rate hike expectations beyond December, the yellow metal has the potential to break above the $1,228 resistance level.

In a speech Wednesday to the Economic Club of New York, Powell made no mention of Trump's criticism, and he wasn't asked about it during a question period with economists afterward.

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. Trump tapped Powell past year to be Fed chairman after he decided against giving Janet Yellen a second term.

"The resulting drop in asset prices might be particularly large, given the valuations appear elevated relative to historical levels", the Fed cautioned in its report, which outlined a number of risks facing the American economy a decade after the financial crash.

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

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




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