Fed chairman's comments send markets soaring

Fed chairman's comments send markets soaring”

In his eagerly awaited and much-ballyhooed speech to the Economic Club of New York Wednesday, Fed Chairman Jerome Powell said interest rates were "just below" the so-called neutral level, that elusive number that neither stimulates nor retards the economy.

The Fed takes equally seriously the risks of hiking too quickly and shortening the economic expansion, and on the other hand of hiking too slowly and prompting higher inflation or financial instability, he said.

But what the Fed truly stands in the way of is the President's most self-destructive impulses.

Trump in recent weeks has repeatedly attacked the Fed - and Powell personally - for the central bank's interest rate increases, which the president has blamed for stock market turmoil and signs of economic weakness.

"I'm doing deals, and I'm not being accommodated by the Fed", Trump said during the interview with the Washington Post.

"So far, I'm not even a little bit happy with my selection of Jay".

Powell's comments and similar remarks from other Fed officials have raised hopes in financial markets that the central bank may be close to slowing its rate increases, which have gradually raised borrowing costs for consumers and businesses. "I am pleased to say that our economy is now close to both of those objectives", Powell said in an appearance at the Economic Club of NY.

Powell, in a speech in NY on Wednesday, said interest rates appear to be just below the level the Fed calls "neutral", where they neither stimulate growth nor impede it.

Powell also made further statements to demonstrate that the Federal Open Market Committee, which determines the direction of interest rates, does not have a predetermined notion for where rates should be and will be making policy decisions instead on developing economic and financial conditions.

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.

The Australian dollar surged on Wednesday, logging strong gains against most major currencies.

But markets were focused less on such subtleties than on what Powell's assessment of where rates are means for the future path of rate hikes.

His remarks come after repeated attacks by President Donald Trump.

BlackRock global fixed income CIO Rick Rieder sees a December rate hike and then maybe only one or two next year. Higher rates can put downward pressure on the economy, but often combat inflation.

The report is the first of what the Fed intends as a twice a year exercise in flagging risks and delving deep into the weeds of the massive USA private credit system - from bank funding to household credit card default levels and into the thicket of issues like hedge fund borrowing that even the central bank can not fully surveil.

With Powell now out of the way, the market is looking for any hopeful signals on trade from a meeting between the United States and Chinese presidents that will take place at the Group of 20 summit in Buenos Aires this weekend.

The president, who selected Mr Powell to lead the bank past year, has also said he is not happy with his pick.

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