Fed Chair’s comments on slower hikes to boost EMs

Fed Chair’s comments on slower hikes to boost EMs

But those words from Federal Reserve Chairman Jerome Powell touched off a wave of optimism among investors who took them to mean the central bank may be winding down its interest rate hikes.

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.

The Dow climbed 617 points, or 2.5 per cent, to 25,366, its biggest gain in eight months.

The central bank expects the unemployment rate to remain historically low next year.

"Many participants indicated that it might be appropriate at some upcoming meetings to begin to transition to statement language that placed greater emphasis on the evaluation of incoming data in assessing the economic and policy outlook; such a change would help to convey the Committee's flexible approach in responding to changing economic circumstances".

"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.

"I'm doing deals, and I'm not being accommodated by the Fed", Trump told The Washington Post this week.

He stepped up the attacks at the end of October when he told the Wall Street Journal: "To me, the Fed is the biggest risk [to the United States economy] because I think interest rates are being raised too quickly".

US President Donald Trump has repeatedly attacked Powell for raising the benchmark lending rate but the Fed chief and other officials say the attacks have no influence on the deliberations of the independent central bank (AFP
Dollar weakens as cautious Fed leads to rate-hike rethink

"We know that moving too fast would risk shortening the expansion", Mr. Powell said.

But in response to questions he likened the policy process to walking through a dark room, forcing officials to slow down.

While noting that some forms of corporate debt levels have become concerning, Powell the financial system and markets appear far sturdier than they did before the 2008 crisis.

You have to go back nearly half a century to find a president that has threatened the Fed's independence to the extent Mr Trump has.

Powell did not address the process of so-called quantitative tightening, concentrating instead on financial stability and its importance. "From a financial stability perspective; however, today we do not see unsafe excesses in the stock market".

The report noted several signs of resilience in the financial system to the sorts of unexpected shocks that might arise, including the strong capital position of banks, generally tempered borrowing by households and a system less vulnerable to the sorts of runs or credit crunches that almost shut down the global economy in the 2007-to-2009 financial crisis.

"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. This gap, which measures expectations on rate increases in the next year, has narrowed to 23 basis points, indicating that traders are not penciling in more than one increase in 2019, although the Fed's median projections still point to three increases next year.

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