US Fed chairman hints at higher rates following Trump attack

Bloomberg

Federal Reserve Chairman Jerome Powell touched off a surge in stock prices Wednesday after saying the outlook for the USA economy remains solid and interest rates are almost within a "neutral" range.

US Federal Reserve Chair Jerome Powell injected investors with a strong dose of optimism on Wednesday, saying that the central bank's policy rate is now "just below" estimates of a level that neither brakes nor boosts a healthy US economy, comments that many investors read as signalling the Fed's three-year tightening cycle is drawing to a close.

The possibly dovish shift in language on Wednesday came as President Donald Trump stepped up attacks on Powell, criticizing the Fed's rate hikes as undercutting his economic and trade policies.

Trump on Tuesday again blasted his hand-picked chief of the United States central bank, saying he was "not even a little bit happy" with his selection of Powell.

USA stock markets moved sharply higher on the news.

U.S. stock markets jumped following the comments, as investors interpreted them to mean the central bank was close to the end of its tightening cycle, which has seen eight rate increases since December 2015 following the global financial crisis.

The 10-year Treasury yield fell with the dollar after the release of Powell's speech in NY.

Powell was not asked about escalating criticism of him from President Trump, who has complained that rising interest rates are hurting the economy.

The Fed chief said in his speech that interest rates remain "low by historical standards" and still provide stimulus to the economy.

US Fed chairman hints at higher rates following Trump attack
US Fed chairman hints at higher rates following Trump attack

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

"If there has been one certainty of late it is the market's ability to misinterpret Fed Chairman Powell".

While Powell said Fed officials are monitoring these risks, they are not on the whole too anxious about them. "As always, our decisions on monetary policy will be created to keep the economy on track in light of the changing outlook for jobs and inflation".

Although a December rate hike has been widely expected, the Fed's path next year has been more uncertain, with investors last month expecting two or even three rate hikes in 2019.

Powell and other officials have dismissed the unprecedented political attacks from Trump, saying they have no influence on deliberations of the independent central bank.

He also said the central bank does not see "dangerous excesses" in stock markets and the financial system now is "substantially more resilient" than it was before the 2008 financial crisis.

Powell in a recent public appearance said policymakers had suffered "a failure of imagination" back then regarding how central financial stability was to the economy overall.

While he acknowledged the growing concern over increased borrowing by businesses that already carried a high debt load, he said for now they were "unlikely to pose a threat to the safety and soundness" of the system in the event of a downturn.

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