Published: Sat, December 01, 2018
Money | By Ethel Goodwin

Powell's Dovish Remarks Were A Plus, But There's Still More To Come

Powell's Dovish Remarks Were A Plus, But There's Still More To Come

Federal Reserve chairman Jerome Powell has opened the door for a potential pullback in projected USA interest rate hikes for 2019 following a widely expected increase in December.

"Powell's comment that the benchmark funds rate is "just below the broad range of estimates of the level that would be neutral for the economy" was enough to spark a strong bounce in United States equities, while the 10 year yield briefly dipped below 3% for the first time since mid-September". The minutes showed a couple of participants felt the benchmark fed funds rate "might now be near its neutral level and that further increases in the federal funds rate could unduly slow the expansion of economic activity".

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.

Fed officials appeared less concerned about a market selloff that led to a rotten October for stocks.

After lift-off in December 2015 followed by a rise a year later, the central bank has since steadily raised benchmark rates and is widely expected to do so again in December.

"We know that things often turn out to be quite different from even the most careful forecasts", Powell said at an Economic Club of NY luncheon on Wednesday.

Kashkari said he was "more worried" about that the Fed raises rates "prematurely" when the job market "has slack" and the wage growth hasn't picked up yet.

Powell had earlier stirred a debate over tightening when he flagged potential headwinds to the economy amid a sell-off in equities and concerns over slowing global growth. The chairman has repeatedly asserted the Fed's independence, and there was no sign that Wednesday's suggestion the central bank may slow the pace of rate hikes is related to Mr Trump's criticisms. 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. And the headline unemployment rate drops further. The fear of higher USA interest rates - fuelled by a surging economy - has been a key driver of a global equity sell-off over the past few months, while the dollar has soared as traders put cash into the U.S. looking for better, safer returns. His emphasis on Wednesday suggested greater flexibility to stop sooner or move more slowly. And Powell's own communications plans to end each meeting with a news conference starting next year mean he needs a clear message for each meeting, starting next month.

The minutes of the Fed's November 7-8 meeting showed that officials expressed concerns about a variety of threats, including the impact of tariffs, a slowing global economy and tightening financial conditions amid falling stock prices.

The dollar, which has outperformed bonds and the S&P 500 this year, benefiting from rising interest rates and safe-haven flows triggered by global trade tensions, fell back after Powell spoke.

"You're no longer on a forced march to neutrality, " he said. Bloomberg Economics anticipates three increases. Currently, the fed funds futures are pricing in an 83 percent chance of a December hike and one more in 2019. "There is a great deal to like about this outlook, " he said in a speech to the Economic Club of NY.

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