Fed says another rate hike is expected 'fairly soon'

Fed says another rate hike is expected 'fairly soon'

Fed says another rate hike is expected 'fairly soon'

Federal Reserve Chairman Jerome Powell, faced with escalating attacks by President Donald Trump, defended the central bank's move to gradually raise interest rates, saying the policy is necessary after almost a decade of historically low rates.

The downgrade is at least partly attributable to Powell's remark on October 3 that interest rates were probably a "long way" from neutral, which seemed to contradict his comment a couple of months earlier rejecting a too-rigid reliance on the neutral rate to shape policy because it could lead to costly mistakes.

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

US Federal Reserve chairman Jerome Powell.

There might be fewer interest rate hikes in 2019.

"His description highlights the significant uncertainty around estimates of neutral, a theme he mentioned at his speech at Jackson Hole in August", Jan Hatzius, chief USA economist for Goldman Sachs, wrote in a note to clients Wednesday.

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Earlier in November, Powell was optimistic about the state of the economy, citing strong annual economic growth exceeding 3 percent and unemployment at a near five-decade low of 3.7 percent. "Not even a little bit".

Hong Kong - The dollar extended losses in Asia while equities rallied after the head of the Federal Reserve hinted at a softer pace of interest rate hikes, though investors remain wary about the weekend's crunch trade talks between Donald Trump and Xi Jinping. Investors have overreacted to relatively nuanced comments from Mr Powell in the past, and it is possible some misread his comments by believing he was telegraphing an end to interest rate increases. "We still expect the Fed to hike rates twice in the first half of next year, before a slowdown in economic growth to below potential forces it to the side lines", Paul Ashworth, chief USA economist at Capital Economics, wrote in a note. It was 2.95 percent earlier this month, suggesting investors have scratched off a full rate hike from their forecasts of Fed policy. Home sales, vehicle sales, business investment and other parts of the economy that are sensitive to interest rates have begun to soften, evidence that the Fed's eight rate increases since 2015 are changing household and business behaviour. "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". "We now run a larger risk" that communications at the Fed's December meeting will be more hawkish than markets expect, he said. Bloomberg Economics anticipates three increases.

With a December increase broadly expected, that meeting may stand out more for the fresh economic projections that policymakers will issue, providing a clearer view of how their perceptions of the economy and the proper path for rates may have changed in recent weeks.

In his highly anticipated address, which came on the heels of a tumultuous month for the markets, Powell noted that the central bank is trying to carefully strike a balance between raising interest rates too quickly, and too slowly.

Tom Porcelli of RBC Capital Markets said investors were wrong to interpret Powell's words as "dovish".

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