Published: Fri, November 30, 2018
Money | By Ralph Mccoy

Fed Chief's Remarks On Economy And Interest Rates Cheer Investors

Fed Chief's Remarks On Economy And Interest Rates Cheer Investors

The Fed has already raised United States interest rates three times this year, and the next rate hike is expected at its next policy meeting in mid-December.

US Federal Reserve Chair Jerome Powell injected investors with a strong dose of optimism on Wednesday, saying that the central bank's policy rate is now "just below" estimates of a level that neither brakes nor boosts a healthy US economy, comments that many investors read as signalling the Fed's three-year tightening cycle is drawing to a close. In an interview with the Washington Post this week Trump said he was "not even a little bit happy" with his selection for Fed chair.

Powell's words appeared to signal that while the Fed may raise interest rates again next month, it isn't overly concerned about inflation, assuaging fears among many investors that rates will continue to climb for the foreseeable future.

While markets still expect a rate hike in December, Mr Powell said, "there is no preset policy path".

"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", he said.

And Powell said the Fed's gradual increases balanced the risks between raising too much and not enough.

Trump directly criticized Powell, whom he appointed as Fed chairman.

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"I'm doing deals, and I'm not being accommodated by the Fed", Trump said. "As always, our decisions on monetary policy will be created to keep the economy on track in light of the changing outlook for jobs and inflation". "You feel your way more under uncertainty of this kind".

But signs of a slowdown overseas and almost two months of market volatility - including another sharp selloff last week - have clouded an otherwise mostly rosy U.S. picture in which the economy is growing well above potential and unemployment is the lowest since the 1960s.

Powell has dismissed the unprecedented political attacks from Trump, saying they have no influence on deliberations of the independent central bank.

The report noted several signs of resilience in the financial system to the sorts of unexpected shocks that might arise, including the strong capital position of banks, generally tempered borrowing by households and a system less vulnerable to the sorts of runs or credit crunches that almost shut down the global economy in the 2007-to-2009 financial crisis.

The speech was focused on stability in the financial system, and Powell cited four potential vulnerabilities for the economy, including excessive leverage and debt loads in some sectors.

Powell in a recent public appearance said policymakers had suffered "a failure of imagination" back then regarding how central financial stability was to the economy overall.

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