Fed minutes: Further hike "warranted soon", debate opened on pause

Fed minutes: Further hike

Fed minutes: Further hike "warranted soon", debate opened on pause

Wall Street last month gave the Federal Reserve its worst grade since Jerome Powell took the helm of the USA central bank earlier this year, docking points for a communications misstep early in October that sent US stocks tumbling.

USA stocks had enjoyed a strong rally on Wednesday after Powell said US interest rates were "just below" neutral, less than two months after saying rates were probably "a long way" from that point.

Stock markets began a broad descent toward a correction - a decline from the most recent peak of at least 10 per cent - in early October, just after Mr Powell had sounded a quite confident tone on the economy.

It promises to confirm investor expectations that the Fed will raise its interest rate when it meets later this month.

Eventually, the FOMC determined that a December interest rate hike was appropriate.

Next month's expected quarter-point increase would lift the central bank's target for the federal funds rate to a range of 2.25 percent to 2.5 percent. "You slow down. You maybe go a little less quickly".

The president has blamed the Fed for the steep two-month fall in the stock market and the possibility that his efforts to boost growth with a major tax cut will be thwarted by rising interest rates.

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The US central bank chairman has repeatedly tried to advise investors not to read too deeply into the Fed's economic forecasts, saying policymakers often don't have the ability to see that far into the future and decisions are formed based on incoming data from markets, the economy and business contacts.

It is not clear whether the idea of perhaps nudging rates above neutral, as he had earlier suggested, is still on the table, or if it means he expects fewer rate hikes, or even a pause.

His comments were interpreted by many investors as a signal that the Fed's three-year tightening cycle is drawing to a close.

"By clearly and transparently explaining our policies, we aim to strengthen the foundation of democratic legitimacy that enables the Fed to serve the needs of the American public", he said. This is probably because Fed Chair Jerome Powell stole most of the thunder the day before with his dovish remarks about the fate of future rate hikes.

While numerous Fed watchers saw the remarks as nothing new, many investors heard it as a signal that the central bank was far from finished raising interest rates. At the same time, Fed officials are emphasizing they are becoming increasingly reliant on indicators and data to tell them that they are getting close to neutral. Three of those increases have been under Powell. Currently, the fed funds futures are pricing in an 83 percent chance of a December hike and one more in 2019.

Trump has repeatedly attacked Powell over rate increases, calling the investment banker he selected a year ago to oversee the world's most powerful central bank a "threat". "There is a great deal to like about this outlook, " he said in a speech to the Economic Club of NY.

The Fed has been trying to strike a balance between not moving too fast and risking shortening the economy's longest running expansion versus not moving too slowly and risking the economy overheating.

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