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Fed hints at higher rates despite Trump attack

03 December, 2018, 00:36 | Author: Kristi Dunn
  • President Trump Says the Federal Reserve Is a 'Much Bigger Problem Than China'

Federal Reserve Chairman Jerome Powell speaks at the Economic Club of New York's luncheon in New York November 28, 2018.

The Dow Jones industrial average closed up more than 600 points, or 2.6 percent, Wednesday.

He offered nothing to dispel market expectations of another rate increase at the Fed's policy meeting on December 18-19.

The minutes did raise a number of worries about Trump's get-tough trade policies, which have levied tariffs on billions of dollars worth of imports from China and other countries and prompted retaliation against US products.

Powell said in a speech in NY that interest rates remained "low by historical standards" and still provided stimulus to the economy.

That contrasted with a remark Powell made in October that the Fed's policy rate was still well below neutral.

The speech was focused on stability in the financial system, and Powell cited four potential vulnerabilities for the economy, including excessive leverage and debt loads in some sectors. "From the financial stability perspective, however, today we do not see unsafe excesses in the stock market". But some economists say three rate increases for next year are beginning to look less certain.

The central bank's rate increases have gradually raised borrowing costs for consumers and businesses. The markets interpreted this as a signal that interest rate hikes were coming to an end and responded accordingly.

Divisive race ends with Republican Hyde-Smith victory
The runoff was rocked by a video showing her praise a supporter by saying she'd attend a " public hanging " if he invited her. In a statement Tuesday night, Espy, an African American politician, said the election is "the beginning, not the end".

The Post said he blamed the Fed for the recent stock market sell-off and General Motors' plans to close plants and cut more than 14,000 jobs.

Those comments followed a series of public attacks on the chairman of the Fed, a position that, while appointed by the president, is supposed to enjoy political independence. On this count the market speaks loud and clear - Powell blinked and the Fed will be sensitive to market swings going forward.

The central bank chief said his colleagues and many other economists "are forecasting continued solid growth, low unemployment and inflation near 2 per cent".

His shift follows criticism from US President Donald Trump who nominated him for the role a year ago. Tiffany skidded 11.8 percent after it said foreign tourists, especially from China, didn't spend as much at its stores in its latest quarter. The courts ruled decades ago that "for cause" meant more than a policy disagreement with the president.

"Even if central bank policies are fully anticipated by the public, some adjustments could occur abruptly, contributing to volatility in domestic and worldwide financial markets and strains in institutions", according to the Fed report.

In his speech Wednesday, Powell spoke directly to the stock market volatility and somewhat downplayed the recent action. The Fed has raised rates three times this year.

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, Powell said. On October 2, in a question-and-answer session on PBS, he said "extremely accommodative" interest rates had been needed in the past but they were "not appropriate anymore".

ANALYST'S COMMENT: The mix of Powell's and Lighthizer's comments indicate "it's far too early to suggest that a Santa Claus rally is in the cards", said Stephen Innes of currency trader OANDA in a report.

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