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

Fed Rate hike 'warranted soon'

Powell unnerved investors on October 3 when he said in an unscripted comment that Fed policy probably was "a long way from neutral" and might eventually have to turn restrictive.

The central bank's rate increases have gradually raised borrowing costs for consumers and businesses.

But many economists warn that by attacking the Fed for raising rates, Trump is actually putting pressure on the central bank to raise rates to demonstrate its independence from political considerations.

Trump on Tuesday again blasted his hand-picked chief of the USA central bank, saying he was "not even a little bit happy" with his selection of Powell.

"I'm not dancing or partying right at the moment", he said, adding that the Fed has talked about gradual rate hikes "for a very long time".

In his NY speech Wednesday, Powell did not dispute the widely held belief that the Fed will raise interest rates again in December, saying, "There is no preset policy" about tightening. But signs of a slowdown overseas and almost two months of market volatility - including a sharp selloff last week - have clouded an otherwise mostly rosy USA picture in which the economy is growing well above potential and unemployment is the lowest since the 1960s.

Speaking to the Economic Club of NY, the Fed chairman also said that while some corporate debt loads have reached riskier levels, "we do not see unsafe excesses in the stock market".

Speaking to the Economic Club of New York Powell said interest rates were now "just below" the range Fed officials consider neutral, a setting created to neither speed nor slow growth.

Factually, Mr Powell's remarks on Wednesday and in October are both true.

The benchmark rate, now at 2 to 2.25 per cent, is within a quarter of a percentage point of the bottom of the Fed's range for neutral, but is also several quarter-point rate hikes below the mid-point estimate of 3 per cent.

But whether the markets are correctly assigning a new future policy path to the Fed given Powell's comments on Wednesday or not, there are two certainties when it comes to the next few years of Fed communications.

And a "couple" said the Fed might be near the neutral rate, meaning more rate hikes "could unduly slow the expansion", driving down inflation.

Gold prices firmed on Thursday as the dollar faltered following dovish comments from US Federal Reserve chair Jerome Powell, calming investor concerns over the pace of rate hikes.

Powell's comments pushed US stocks rocketed to their biggest gain in eight months.

A "significant fall" in asset prices would make it more costly for nonfinancial businesses, which are already highly leveraged, to obtain funding, the Fed cautioned.

"Many baby boomers like me are, however, reaching an age where a good report is, 'Well, there are a number of things we should keep an eye on, but all things considered you are in good health, '" said Powell. Fed forecasts from September showed policymakers expected to raise rates a bit above 3 percent by around 2020, according to the median. The FOMC is likely to link future interest rate decisions more closely to incoming data and then decide on a case-by-case basis. While the potential for an escalation in tit-for-tat tariffs with China could "slow economic growth more than expected", others noted.

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