Fed officials express caution about pace of future hikes

Fed officials express caution about pace of future hikes

Fed officials express caution about pace of future hikes

If the Fed, as expected, raises the fed-funds rate next month to a band between 2.25% and 2.5%, that would leave it touching the bottom of the range of neutral estimates but four more quarter-percentage-point increases from the top. But few economists seem to know what "neutral" means. Earlier this week the Bank of Israel Monetary Committee raised Israel's key rate from its historic low of 0.1%, where it has been anchored since March 2015, to 0.25%, its first rate hike since June 2011.

Fed Vice Chairman Richard Clarida gave an important talk Tuesday on how the central bank should react to new information.

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

While the speech had "cleaned up after Powell's sloppy language last month", markets may have reacted too strongly to the comments, said Ed Al-Hussainy, senior rates analyst at Columbia Threadneedle Investments.

In its most recent projections, the Fed forecast that it would raise rates in December for the fourth time this year, followed by three more hikes in 2019.

Powell said in a speech in NY that interest rates remained "low by historical standards" and still provided stimulus to the economy. "From a financial stability perspective; however, today we do not see risky excesses in the stock market".

Powell repeated his view that the Fed will have to be especially responsive to incoming economic data. "They're making a mistake because I have a gut, and my gut tells me more sometimes than anybody else's brain can ever tell me".

In his speech to the New York Economic Club, Powell again stressed there was "no preset policy path" for interest rates and said the central bank had moved gradually, since "moving too fast would risk shortening the expansion".

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In an interview this week with The Washington Post, Trump said he was not happy with Powell's support for further rate hikes.

"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", Powell said.

After Powell's speech, stocks immediately soared, with the Dow surging 617 points to close at 25366.43.

Fed staff research and a survey of bank executives indicated that the demand for reserves had changed in the years since the crisis, complicated by new liquidity and other regulations.

The Fed still sees the economic outlook as relatively strong.

Minutes released Thursday from the Fed's last policy meeting also showed some policymakers believed going above neutral could slow the economy needlessly.

"My own assessment is that, while risks are above normal in some areas and below normal in others, overall financial stability vulnerabilities are at a moderate level", he said at an Economic Club of NY lunch.

"I think the president got to him", Geltrude said, adding that Trump acted like a baseball team's manager berating the umpire for a bad call.

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