Fed Chair’s comments on slower hikes to boost EMs

Fed Chair’s comments on slower hikes to boost EMs

Fed Chair’s comments on slower hikes to boost EMs

Fed officials agreed that it would be "appropriate" to take action before the December meeting if necessary to keep the federal funds rate "well within" the Fed's target range, according to the minutes.

"Many participants indicated that it might be appropriate at some upcoming meetings to begin to transition to statement language that placed greater emphasis on the evaluation of incoming data in assessing the economic and policy outlook", said the minutes.

The Fed has settled into a quarterly rate-hike cycle and is still expected to raise rates again next month, in what would be the fourth hike this year.

With last year's deep tax cuts and fiscal stimulus from Congress, the world's largest economy continues to hum: producing steady job growth and driving the unemployment rate to its lowest level since 1969 even as inflation remains right at the Fed's two percent target. While the central bank is widely expected to lift rates, his comment was a far cry from his characterisation last month of them being "a long way from neutral".

Almost all economists anticipate the Fed will raise rates at the upcoming meeting in December, and the Fed has penciled in three rate hikes in 2019 - though it remains to be seen whether Powell will follow through with that plan after his comments this week. Since a September news conference when he painted a rosy picture of where things stood, some economic indicators have softened; others, such as wage growth, have firmed, leaving the Fed for the first time in a long time pulled in different directions.

The hikes have prompted a flood of criticism from President Donald Trump, who has repeatedly attacked the Fed and Powell personally. Now they foresee three quarter point hikes.

"Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy, that is, neither speeding up nor slowing down growth", Mr Powell told the Economic Club of NY.

Earlier in November, Powell was optimistic about the state of the economy, citing strong annual economic growth exceeding 3 percent and unemployment at a near five-decade low of 3.7 percent.

Just on Tuesday, Fed Vice Chair Richard Clarida, in a speech to numerous same economists and investors in NY, used precisely the same language to describe the policy rate as "just below" the range for neutral. Home sales, vehicle sales, business investment and other parts of the economy that are sensitive to interest rates have begun to soften, evidence that the Fed's eight rate increases since 2015 are changing household and business behaviour.

But some Wall Street economists and analysts said that they did not see a major shift in Fed's tightening monetary policy.

"We know that moving too fast would risk shortening the expansion", Mr. Powell said.

"To me, this implies a willingness to be more patient in the lower end of the range of neutral", he told Reuters.

In his speech, which was focused on the Fed's assessment of the health of the USA financial system, Powell said it is "important to distinguish between market volatility and events that threaten financial stability".

In a speech to the Economic Club of New York, Powell cautioned that while the economy is healthy now, "sound policymaking is as much about managing risks as it is about responding to the baseline forecast" - a warning that not hiking rates could have consequences down the road.

"The neutral rate is an absurd concept".

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