Published: Mon, December 03, 2018
Finance | By Jaime Brady

Powell: US economy healthy and rate hikes aren't automatic

Powell: US economy healthy and rate hikes aren't automatic

Jerome Powell, chairman of the U.S. Federal Reserve, speaks at a meeting of the Economic Club of NY in New York, U.S., on Wednesday, Nov. 28, 2018.

Speaking to the Economic Club of NY, 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.

The remarks seemed more dovish than his comments in early October that the USA central bank had a long way to go before interest rates hit neutral, indicating that more hikes could be on the horizon.

Investors expect more clues on the Fed's monetary tightening path from the minutes of the United States central bank's November 7-8 meeting, due later on Thursday.

Trump has previously lamented interest rate hikes and expressed regret about nominating Powell.

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.

"Powell took pains to state that the FOMC's rate projections are based on their best assessments of the economic outlook", Kevin Logan, chief USA economist for HSBC wrote in a Wednesday note to clients, referring to the policy-setting Federal Open Market Committee.

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Most of the money from the tax cuts has been devoted to finance share buybacks, further boosting the wealth of the financial oligarchy, not to undertake expansion in the real economy. Fed officials also discussed how to communicate a possible change in their approach to any further hikes. His remarks Wednesday appeared to suggest to this audience that he might stop sooner or move more slowly. "We have to be thinking about how much further to raise rates and the pace at which we will raise rates". That remark had unsettled investors who feared it signaled that the Fed would continue raising rates well into the coming months. To date, markets have considered quarter-end meetings in March, June, September and December as "live" meetings that result in rate changes.

But Powell said: "my view is that such losses are unlikely to pose a threat to the safety and soundness of the institutions at the core of the system and, instead, are likely to fall on investors in vehicles like collateralized loan obligations with stable funding that present little threat of damaging fire sales". "There's no question about that".

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.

"What do you do?" said Powell in NY. You feel your way. "I think that's what we've been doing". He added that interest rates were "just below" neutral estimates.

Markets are now trying to divine Powell's plans from data pulling in two directions - rising wages that could be a precursor to inflation, for example, compared to slowing growth and falling oil prices that may keep inflation down, or other indicators clouding the picture. Three of those increases have been under Powell.

In his speech Wednesday, Powell spoke directly to the stock market volatility and somewhat downplayed the recent action.

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. The US federal funds rate range is now 2.0-2.5 per cent.

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