Wall Street rallies as Fed sees interest rate 'just below' neutral

03 December, 2018, 04:30 | Author: Kevin Carter
  • U.S. President Donald Trump walks on the South Lawn after returning to the White House in the early morning hours from a trip to Mississippi

In a speech that comes in the wake of another volatile market selloff, Powell offered few clues on how much longer the USA central bank would continue tightening policy but he did say the policy rate, at 2-2.25 percent, is now "just below" the broad range of estimates of neutral, which in September was 2.5-3.5 percent. He also noted that the economy had yet to feel the full impact of the hikes.

In recent weeks, President Donald Trump has repeatedly attacked the Fed - and Powell personally - for their rate increases, which the president has blamed for any economic weaknesses or stock market turmoil.

Policy makers provisionally penciled in three quarter-percentage-point rate increases for next year, according to the median of forecasts released in September's so-called dot plot. "If you follow the dot plots as consensus, there should be two more hikes next year, though that is not guaranteed and will be data dependent", said Michael DePalma, chief executive, PhaseCapital LP. "Not even a little bit", Trump said.

The central bank's rate increases have gradually raised borrowing costs for consumers and businesses. Still, he said, "this dovish Fed lean is a fantastic cure-all for what ails stock markets sentiment". Commodity-producing and emerging countries led gains among currencies as traders bet the greenback may be close to its peak.

Tokyo's Nikkei 225 rose 0.4 percent to 22,262.50 and Sydney's S&P-ASX 200 added 0.6 percent to 5,758.40. The Fed's benchmark federal-funds rate since then has been between 2% and 2.25% - or just below the lowest estimate. He tried to dismiss as premature questions over whether the Fed would need to raise rates above neutral to a level aimed at slowing growth.

Speaking to the Economic Club of NY, the Fed chairman also said that while some corporate debt loads have reached riskier levels, "we do not see unsafe excesses in the stock market".

"The resulting drop in asset prices might be particularly large, given the valuations appear elevated relative to historical levels", the Fed cautioned in its report, which outlined a number of risks facing the American economy a decade after the financial crash.

More news: Jan Vertonghen set to make Tottenham comeback in Champions League

Economists are divided about what the Fed will do beyond December. Oxford Economics now predicts a single increase in 2019 while JP Morgan and Goldman Sachs see four.

"Fed policy makers appear to have made a decision to strike a somewhat more cautious tone as of late".

Powell said the Fed is paying "very close" attention to economic data even as it expects continued "solid" growth, low unemployment and inflation near its 2-percent target. The minutes showed a couple of participants felt the benchmark fed funds rate "might now be near its neutral level and that further increases in the federal funds rate could unduly slow the expansion of economic activity".

Daco said Powell's comments - coupled with comments from Fed vice chair Richard Clarida on Tuesday - show a "growing desire by the Fed to move the landing zone for the federal funds rate, and signal less cumulative tightening ahead". Investors have been bracing for higher interest rates in the face of possible inflation stemming in part from Trump's trade wars as well as the tax cuts he pushed through Congress late previous year.

And some economists say the markets misread Powell. Rather, we assume that Powell wanted to prepare the markets for a change in the central bank's communication.

Trump further took aim at Powell in a Wall Street Journal interview on Monday that mainly dealt with the trade conflict with China.

When interest rates are neutral, the economy is on a sustainable path. Deviations from neutrality can cause booms and busts.


  • Ohio State edged out of College Football Playoff

    Ohio State edged out of College Football Playoff

    According to Westgate LV Superbook, the Bulldogs would be favored over both Oklahoma and Ohio State on a neutral field. Clemson (the ACC champion) and Notre Dame (undefeated) should occupy the top three spots, likely in that order.
    Trump says next meeting with North Korea's Kim likely in early 2019

    Trump says next meeting with North Korea's Kim likely in early 2019

    When asked if Kim would come to the USA for a visit apart from the second summit, Trump said "at some point" he will. They have also begun work to reconnect a train line and fix another rail link across the border.
    Saudi bin Salman sidelined in G20 family photo

    Saudi bin Salman sidelined in G20 family photo

    The US president cancelled a formal sit-down with Mr Putin at the summit in Argentina over Moscow's seizure of Ukrainian vessels. At the end Macron can be heard saying: "I am a man of my word".
  • Comey challenge to House subpoena goes to court

    Comey challenge to House subpoena goes to court

    Comey may not condition his cooperation with a congressional investigation on the presence of television cameras", Hungar wrote. Judge Trevor McFadden scheduled a 2 p.m. hearing on the motion for November 30.
    Wilder and Fury draw in bout that Englishman clearly dominated

    Wilder and Fury draw in bout that Englishman clearly dominated

    Los Angeles Lakers basketball star LeBron James wrote: "Man that was the funniest/craziest fight I've ever seen in my life". From our side we want that undisputed fight ASAP, and that's Deontay Wilder in April 13 at Wembley.
    Kawhi and Durant balled out in Raptors-Warriors slugfest

    Kawhi and Durant balled out in Raptors-Warriors slugfest

    Jonas Jerebko added a season-high 20 points, but it wound up not being enough as the Dubs lost their fifth straight road game. Durant capped an 18-point third quarter with a 32-foot pull-up three, the final basket in a personal 13-point streak.
  • Packers part ways with Mike McCarthy

    Packers part ways with Mike McCarthy

    Before the McCarthy news broke, he said in his postgame press conference that he wasn't sure what might happen down the stretch. The Cardinals struggled early offensively but ended up with six plays of 20 yards or longer, majority in the second half.
    Deontay Wilder, Tyson Fury fight to draw in heavyweight title bout

    Deontay Wilder, Tyson Fury fight to draw in heavyweight title bout

    He says today's fight will be between Tyson Fury who is the boxer and Deontay Wilder who is the banger. Listen, I'm not going to take anything from Wilder, he's a great champion and a great man.
    HIV/AIDs: UK meets global target, as new diagnoses drop

    HIV/AIDs: UK meets global target, as new diagnoses drop

    Of new HIV diagnoses in the eastern part of the Region, 59% are reported to be from heterosexual transmission. Data need to be carefully considered as they depend on the transmission mode reported by the individuals.
  • Ranieri backs Sarri's call on Kante

    Ranieri backs Sarri's call on Kante

    Claudio Ranieri claimed his Fulham team are ready for a hard fixture with Chelsea in the Premier League this weekend. At the same time, I can give more in other positions.
    Former US president George HW Bush passes away at 94

    Former US president George HW Bush passes away at 94

    Another son, Jeb - a former Florida governor - made an unsuccessful bid for the Republican nomination in 2016. His eldest son, George W Bush, went on to become the 43rd United States president.
    Deutsche Bank Offices In Germany Raided By Police In Money Laundering Case

    Deutsche Bank Offices In Germany Raided By Police In Money Laundering Case

    It is believed the probe involves the so-called Panama Papers , leaked documents pertaining to over 200,000 offshore dealings. It is separate from another money laundering scandal surrounding Danske Bank , where Deutsche Bank is involved.


Netanyahu's Legal Troubles Mount as Police Seek New Bribery Charges
The appointment of Alsheikh's potential successor is being held up after a government-appointed committee rejected his candidacy. They also recommended charges be brought against Elovitch, members of his family and members of his Bezeq management team.

Thousands without power after major 7.0 Alaska quake
At present, three overnight emergency shelters in Anchorage , Chugiak and Wasilla have been opened by the Red Cross of Alaska. The 9.2-magnitude quake on March 27, 1964, was centered about 75 miles (120 kilometers) east of Anchorage .

Trump Suspends Adding New Tariffs to Chinese Imports
Ahead of the G-20, the US planned to increase tariffs on $200 billion in Chinese goods from 10% to 25%, effective January 1. Chinese President Xi Jinping (R) meets with his USA counterpart Donald Trump in Buenos Aires , Argentina , Dec. 1, 2018.

Female Cop Indicted For Murder Of Botham Jean, DA Cites "Intentional Event"
Newly elected Dallas District Attorney John Cruezot says he wants to change Amber Guyger's charge of manslaughter to murder . After her shift ended, Guyger told police, she drove home and parked on the fourth floor of the apartment complex's garage.

Trump joins leaders of Canada, Mexico to sign new trade pact
However, after a deal was agreed in principle on 30 September, Mexican President Pena Nieto hailed it as a "win-win-win". Trump was greeted warmly at the Casa Rosada by Argentine President Mauricio Macri, a longtime business acquaintance.

Saudi prince in Argentina as G20 summit tensions brew
Saudi officials have blamed the killing on rogue agents and denied the crown prince had knowledge of the operation. Oil prices have slid in recent weeks on concerns of softening global growth caused by the US-China trade war.

Tijuana Mayor Says Migrant Caravan Organisers Should Face Criminal Charges
Department of Homeland Secretary Kirstjen Nielsen said this week that there are 8,500 spread across Tijuana and nearby Mexicali. She said she couldn't walk around freely without fear, her children never attended school because it was too unsafe .

Marco Silva: ‘power’ of Merseyside derby win can give Everton confidence boost
But the change that Marco Silva has brought to the Goodison outfit has been impressive in such a relatively short period. In fact, Liverpool have not lost to their crosstown rivals at Anfield in nearly two decades. "It's football.

Oil Price Sustains Gain As Brent Crude Rises To $59.36 Per Barrel
International Brent crude oil futures were at $59.68 per barrel at 0742 GMT, up 17 cents, or 0.3 percent, from their last close. The kingdom had raised production to an all-time high in November, pumping 11.1 million to 11.3 million bpd.

Kim Jong Un Open To North Korea Nuclear Site Inspection
A United Nations panel recently adopted a resolution calling for accountability for gross human rights violations in North Korea. The US has been adamant pressure and sanctions must be maintained on Pyongyang until it fully dismantles its weapons programme.