Was Post-Fed Chair Speech Rally a Market Overreaction?

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

According Reuters, nearly all Federal Reserve officials at their last meeting agreed another interest rate increase was "likely to be warranted fairly soon", but also opened debate on when to pause further hikes and how to relay those plans to the public.

"The health of the economy gradually but steadily improved, and about three years ago the [Fed] judged that the interests of households and businesses, of savers and borrowers, were no longer best served by such extraordinarily low rates", he said.

"Westpac is forecasting rates will rise in December, and this will be followed by 3 further rate hikes in 2019".

The Fed held rates steady at its November meeting, and made no mention in its statement after that session about the sharp sell-off in equity markets in the weeks before it.

"If people get a sense that unemployment's going up, heaven forbid, we're going to see great volatility in 2019", Weston said by phone on November 29.

That "just below" phrasing seemed to indicate that the Fed is almost done raising rates for the time being.

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.

Mr Powell's nuanced comments eased investor concerns about 2019.

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His renewed focus on the "neutral" level of interest rates as a potential turning point for policy that until now has been on a steady tightening path is echoed by the minutes.

Some members noted the further appreciation of the United States greenback could also pose as a downside risk to the economy.

The need for "further gradual rate increases" as appropriate to keep the current recovery on track has been a staple of recent Fed policy statements as the central bank nudged rates back toward more normal levels after a decade near zero. That suggested to many investors that fewer rate increases might be on the way. Since then, he and other Fed officials have sounded a bit more cautious, nodding to a slowdown in Europe, Japan and China.

"What do you do?" said Powell in NY. "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", he was quoted as saying in the report.

In what was seen as a shift in tone from remarks last month, Powell said Wednesday that the Fed's series of rate increases had brought policy to "just below" the range of estimates of neutral, where it neither spurs nor restricts the economy.

The dollar, which has outperformed bonds and the S&P 500 this year, benefiting from rising interest rates and safe-haven flows triggered by global trade tensions, fell back after Powell spoke. Three of those increases have been under Powell.

One challenge for the Fed is that officials aren't sure where a neutral rate actually lies.

The Fed has been trying to strike a balance between not moving too fast and risking shortening the economy's longest running expansion versus not moving too slowly and risking the economy overheating. "There is a great deal to like about this outlook, " he said in a speech to the Economic Club of NY.

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