U.S. stocks surge after Fed chair's comments on interest rates

U.S. stocks surge after Fed chair's comments on interest rates

U.S. stocks surge after Fed chair's comments on interest rates

Asian stocks followed Wall Street higher on Thursday after U.S. Federal Reserve Chairman Jerome Powell suggested the pace of interest rate increases might slow. Investors may be "over interpreting that phrase" he said when asked to define Powell's description of interest rates during an interview on FOX Business. On October 3, he said rates were "a long way" from neutral levels. Investors had been anxious that too many rate hikes at too fast a pace would raise the cost of borrowing across the board, from mortgages to auto loans.

Expectations the Fed will raise interest rates twice more are priced into markets, but recent criticism of the Fed by US President Donald Trump has raised concerns the central bank may be wary of further tightening.

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

"Many participants indicated that it might be appropriate at some upcoming meetings to begin to transition to statement language that placed greater emphasis on the evaluation of incoming data in assessing the economic and policy outlook; such a change would help to convey the Committee's flexible approach in responding to changing economic circumstances".

Federal Reserve Chairman Jerome Powell says he's pleased with the state of the USA economy but cautions that some forms of corporate debt have reached risky levels.

The chairman also suggested that interest rates appear to be just below the level the Fed calls "neutral", where they are thought to neither stimulate growth nor impede it.

Tottenham fan arrested for throwing banana skin at player
The North London derby at Emirates was a feisty affair as Arsenal ran out with three points against Tottenham Hotspur and leapfrogged them on the Premier League table.

During the interview, the president deflected blame for a slowing US economy, instead blaming Powell's decision to hike interest rates and other moves. "This was again on display today", RBC Capital Markets chief US economist Tom Porcelli wrote in a note.

The dollar index, which measures the greenback against a basket of currencies, was down 0.6 percent after Powell said that while there was "a great deal to like" about USA prospects, the Fed's gradual interest-rate hikes are meant to balance economic risks. Still, "this dovish Fed lean is a fantastic cure-all for what ails stock markets sentiment".

On Tuesday the president told the Washington Post blames the Fed for recent declines in the stock market and General Motors' plans to close two plants in the US. Since then, he and other Fed officials have sounded a bit more cautious, nodding to a slowdown in Europe, Japan and China.

"The buzz word (in Powell's speech) seems to be we are "just below" neutral status regarding rate increases", said Walter Pehowich, executive vice president of investment services at Dillon Gage Metals. Fed forecasts from September showed policymakers expected to raise rates a bit above 3 percent by around 2020, according to the median.

Powell remains upbeat on the economy, forecasting continued solid growth, low unemployment and inflation near the Fed's 2 percent target.

"It's important to distinguish between financial market volatility and events that threaten financial stability", he said.

Recommended News

We are pleased to provide this opportunity to share information, experiences and observations about what's in the news.
Some of the comments may be reprinted elsewhere in the site or in the newspaper.
Thank you for taking the time to offer your thoughts.