Powell Opens Door to Possible Pullback in Fed Rate-Hike Outlook

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

Federal Reserve Board Chairman Jerome Powell speaks at his news conference after the two-day meeting of the Federal Open Market Committee (FOMC) on interest rate policy in Washington, U.S., June 13, 2018.

USA central bankers believe another interest rate hike is due "fairly soon", boosting widespread expectations the Federal Reserve will raise lending costs next month, according to meeting minutes released Thursday.

Powell in his remarks Wednesday also raised the importance of policymakers staying flexible in charting a path of policy given that the effects of rate hikes show up with a lag - a point that was reinforced in the Fed's November minutes.

That stood in contrast with comments Powell had made in October when he said that the Fed's policy rate was still a "long way from neutral".

In remarks delivered two weeks ago on a late evening in Dallas, Powell refined his summertime message, explaining that just as someone in a room where the lights suddenly go out must "slow down" to avoid running into furniture, the Fed must do the same when nearing neutral to avoid missing signals from economic data.

"We know that things often turn out to be quite different from even the most careful forecasts", Powell said at an Economic Club of NY luncheon on Wednesday.

Paul Ashworth, chief USA economist at Capital Economics, said he expects two rate hikes in 2019, not the three the Fed has been projecting for next year.

Speaking of the heading of Fed's monetary policy, a few policymakers expressed uncertainty about the timing of future rate increases.

Prince William and Kate visit Leicester City FC to pay tribute
He added: "If only more owners (of professional football clubs) took his example of how to benefit the community, be involved". Kate, who wore a coat by Catherine Walker , joined William as they chatted with fans outside of the stadium.

Some market analysts treated such remarks as an indication of a possible pause in rate hikes, since the neutral rate could be used to decide a target area for the central bank to complete its normalization cycle.

"The unemployment rate is 3.7 percent-a 49 year low, and many other measures of labor market strength are at or near historic bests", he said.

Claiming that benchmark lending rates were "just below" a range of estimates for "neutral", that is, neither stimulating nor slowing growth, Powell sent a signal that markets took to mean the Fed might ease off on raising rates in 2019. "We have to be thinking about how much further to raise rates and the pace at which we will raise rates".

The fed fund futures contract expiring in January 2020, a heavily traded contract that reflects market expectations for where rates will be at the end of 2019, rallied sharply on record volume and pointed to an implied yield of 2.70 percent.

"By clearly and transparently explaining our policies, we aim to strengthen the foundation of democratic legitimacy that enables the Fed to serve the needs of the American public", he said.

"Given the volatility you've seen recently, it's probably quite reasonable to expect a little bit of a bounce". That would bring it about to the bottom of the September range of neutral-rate estimates from 15 governors and regional Fed presidents, who gave figures from 2.5 percent to 3.5 percent. "There is a great deal to like about this outlook, " he said in a speech to the Economic Club of NY. The Fed's benchmark federal-funds rate since then has been between 2% and 2.25% - or just below the lowest estimate. Three of those increases have been under Powell.

As a result, "almost all" Fed members said a rate hike "was likely to be warranted soon".

"There is a great deal to like about this outlook", said Powell on Wednesday.

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