European shares join Wall Street rally on dovish Fed comments

Powell defends Fed charge hikes amid Trump onslaught			 0					By		Marta Subat

A senior U.S. Federal Reserve official said on Friday that the Fed should pause on interest rate hikes as inflation remains under control. 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. "We have to be thinking about how much further to raise rates and the pace at which we will raise rates". To date, markets have considered quarter-end meetings in March, June, September and December as "live" meetings that result in rate changes.

A few participants who agreed further rate increases were likely to be warranted also "expressed uncertainty about the timing" as Fed officials discussed how to communicate a possible change in their approach to any further hikes.

Powell "gave the market, and presumably President Trump, exactly what he wanted, which was an admission that the previously proposed path of future rate hikes was probably too aggressive and opening to slowing the rate of hikes", said Oliver Pursche, vice chairman and chief market strategist at Bruderman Asset Management in NY.

The Fed members' comments initially appeared to comfort investors.

On Wednesday Powell said the Fed is paying "very close" attention to economic data even as it expects continued "solid" growth, low unemployment and inflation near its 2 percent target. At best, the coming meeting could see a shift in the majority of Fed representatives surveyed from three to two rate hikes in 2019. After mid-year, Ashworth said he expects that "a slowdown in economic growth to below potential forces (the Fed) to the side lines".

"A couple of participants noted that the federal funds rate might now be near its neutral level and that further increases in the federal funds rate could unduly slow the expansion of economic activity and put downward pressure on inflation and inflation expectations", said the minutes. His emphasis on Wednesday suggested greater flexibility to stop sooner or move more slowly. "And I'm not blaming anybody, but I'm just telling you I think that the Fed is way off-base with what they're doing". But that approach is no longer appropriate, Powell said.

"Powell's comment that the benchmark funds rate is "just below the broad range of estimates of the level that would be neutral for the economy" was enough to spark a strong bounce in U.S. equities, while the 10 year yield briefly dipped below 3% for the first time since mid-September".

Neither Clarida nor Powell said definitively whether rate hikes should stop at neutral, and each stressed that level was very hard to estimate.

The minutes of the November meeting showed Federal Open Market Committee policymakers had on their agenda a series of issues, ranging from a tightening of financial conditions, global economic risks, "and some signs of slowing in interest-sensitive sectors", that had begun to sway their assessment of the economy.

After the financial crisis erupted in 2008, the Fed kept rates at historically low levels to revive the ailing economy. "There is a great deal to like about this outlook, " he said in a speech to the Economic Club of NY. Three of those increases have been under Powell.

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