Powell Comments Suggest Fewer Rate Hikes Next Year

Powell Comments Suggest Fewer Rate Hikes Next Year

Powell Comments Suggest Fewer Rate Hikes Next Year

The value of stocks jumped for US and Asia markets after the Federal Reserve chairman indicated interest rates would remain unchanged for the New Year.

Many economists also worry about potential economic damage caused by Trump's trade conflicts with China and other nations.

The Dow was up by more than 500 points. It indicated that the Fed is not committed to further rate increases next year and is very attuned to their demands, despite official claims that its policies are set by the state of the economy not the markets.

Analysts think a rate hike next month is likely, but economists admit three rate increases for next year are beginning to look less certain, especially if stock market volatility increases, and consumer and business sentiment worsens in early 2019.

Powell offered few clues on how much longer the USA central bank would raise interest rates in the face of a slowdown overseas and market volatility at home. "This was again on display today", RBC Capital Markets chief USA economist Tom Porcelli wrote in a note.

Some pointed out that corporate capital investment has slowed down amid uncertainty over trade policies. "In addition, the effect of a stronger dollar and weaker foreign economies on trade could affect the creditworthiness of USA firms, particularly exporters and commodity producers".

"Almost all participants expressed the view that another increase in the target range for the federal funds rate was likely to be warranted fairly soon" if employment and inflation remain in-line or stronger than the Fed's current expectations, the minutes said. That 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.

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The spark for the market rise was a sentence at the start of Powell's address to the Economic Club of NY. Tiffany skidded 11.8 percent after it said foreign tourists, especially from China, didn't spend as much at its stores in its latest quarter.

For his part, Trump has sought repeatedly to shift blame for any economic troubles to the Fed and its rate increases. Fed officials also discussed how to communicate a possible change in their approach to any further hikes. "I think that was what really sparked the market to go higher". "Certainly, all meetings are live now".

The speech signalled a move away from past statements.

Powell noted the word "bubble" wasn't mentioned in the report, though he said some asset prices, such as corporate debt, were high relative to the past.

After keeping rates at a record low near zero for seven years, the Fed three years ago began gradually raising rates, including three hikes this year. That would bring it to about the bottom of the September range of neutral-rate estimates from 15 governors and regional Fed presidents, who gave figures from 2.5 per cent to 3.5 per cent.

But policymakers may be divided over what to do after that, with some anxious that raising rates after December could "unduly slow" the American economy, just as signs of vulnerability are beginning to gather, the minutes showed. The US federal funds rate range is now 2.0-2.5 per cent.

On the economic front, US real gross domestic product (GDP) increased at an annual rate of 3.5 percent in the third quarter, down from a 4.2 percent increase in the second quarter, according to a report released by the Commerce Department on Wednesday.

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