Markets may have misread Powell speech, analysts say

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

That stood in contrast with comments Powell had made in October when he said that the Fed's policy rate was still a "long way from neutral".

"The unemployment rate is 3.7 percent-a 49 year low, and many other measures of labor market strength are at or near historic bests", he said.

That remark had unsettled investors who feared it signaled that the Fed would continue raising rates well into the coming months.

The speech was "a reassuring message from a market perspective because it removes concerns of a Fed dead set on tightening up to a point where rates would intentionally slow down the economy", he added.

The Fed's policy has drawn vocal criticisms from President Trump, who said Tuesday that he's "not even a little bit happy" with Powell's performance and faulted him for the stock market's recent declines. 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.

The basket has rallied from a low of just under 88 in February this year and now trades at 96.20, just off its recent 1near 18-month high at 97.16.

Speaking to the Economic Club of NY, the chairman also suggested that interest rates appear to be just below the level the Fed calls "neutral", where they are thought to neither stimulate growth nor impede it.

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
Dollar weakens as cautious Fed leads to rate-hike rethink

Powell also revealed the economic growth coincides with inflation, and the Fed's annual goal of 2 percent interest rate increases.

While noting that some forms of corporate debt levels have become concerning, Powell the financial system and markets appear far sturdier than they did before the 2008 crisis. Instead, officials suggested incorporating wording to emphasize a greater dependence on incoming data to govern future rate hikes.

However, being just below neutral doesn't necessarily mean that the Fed is nearing its limit in terms of hiking rates as the range for neutrality can vary.

"It's important to distinguish between financial market volatility and events that threaten financial stability", he said.

Feldstein says the Fed should keep raising rates to protect the US economy from a potential downfall. Many people, including Trump, say they are hopeful the two leaders will reach a breakthrough and avoid further tariffs.

Higher interest rates tend to slow economic growth over time as well as pressure stock prices. And I'm not blaming anybody, but I'm just telling you I think that the Fed is way off-base with what they're doing. The general consensus is that a rate hike in December will most certainly occur as the CME Group's FedWatch Tool, an algorithm that calculates the probability of a rate hike in a given month, is now showing an 82.7% chance the Federal Reserve will institute a fourth rate hike to end 2018.

Policy makers provisionally penciled in three quarter-percentage-point rate increases for next year, according to the median of forecasts released in September's so-called dot plot.

  • Eleanor Harrison