Fed Minutes: Further Hike 'Warranted Soon,' Debate Opened On Pause

Image Tim Arbaev iStock

Image Tim Arbaev iStock

Fed Chair Jerome Powell caused stock prices to surge on Wednesday when he said the current interest rate was "just below" the range within which a neutral rate could fall.

Officials also said that their post-meeting statement may need to be modified at coming meetings, "particularly the language referring to the committee's expectations for 'further gradual increases,"' the minutes said.

"As always, our decisions on monetary policy will be created to keep the economy on track", he said. Home sales, vehicle sales, business investment and other parts of the economy that are sensitive to interest rates have begun to soften, evidence that the Fed's eight rate increases since 2015 are changing household and business behavior.

And on Wednesday evening, just as Mr Carney was being questioned about the stability report, Mr Powell appeared to be delicately walking away from a gun the United States president had pointed at his head. Yet he has kept talking about it.

Trump has repeatedly blasted Powell's decision to hike the rate so drastically at once, appearing to pin October's volatile stock market performance on that development. Investors took this as a dovish shift, but o second reading the wording of Powell's speech refuted that.

There are many reasons why Powell would pick now to begin shifting his footing. He has decided that the Fed stands in the way of both.

If you wanted to cook up a recipe for inflation, you couldn't do much better than the one U.S. President Donald Trump has concocted in the past year.

Powell's speech was focused largely on a new Fed report on stability of the USA financial system, but contained an unusual comment: "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".

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At the December 18-19 meeting, expected to bring the Fed's target rate to between 2.25 percent and 2.5 percent, Fed officials will clarify where things stand when they will update their projections on expected rate increases for 2019. Now they foresee three quarter point hikes.

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.

Instead he highlighted a new financial stability report the Fed published earlier on Wednesday.

The local share market is headed higher, following a strong bounce-back on Wall Street overnight.

The Fed needs to raise interest rates to stave off inflation but investors fear they may also slow down economic growth.

Fed officials have indicated for some time that they plan to keep raising rates until they reach a "neutral" point, neither slowing down nor boosting economic growth.

Earlier this month, Trump criticized the Fed's decision to continue increasing interest rates, stating that the U.S. central bank has "gone insane", Sputnik reported.

Tim Duy, an economics professor at the University of OR who follows the Fed closely, said it was a sign the Fed was ready to wait to see how past hikes will play out. "The Fed may be well served to steer the focus away from the concept of the neutral rate and toward the underlying economy itself".

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