Fed's gradual rate hikes balance against risks: Powell

President Trump Says the Federal Reserve Is a 'Much Bigger Problem Than China'

But many economists warn that by attacking the Fed for raising rates, Trump is actually putting pressure on the central bank to raise rates to demonstrate its independence from political considerations.

But Powell also noted a number of looming risks, including the slowdown in global growth and the fading economic benefits of the tax cuts and government spending boost that took effect this year as well as the cumulative effect of the Fed's own rate hikes.

"Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy - that is, neither speeding up nor slowing down growth", Powell said in a speech at the Economic Club of NY on Wednesday.

US stocks surged on Wednesday after Federal Reserve Chairman Jerome Powell said interest rates are close to neutral, a tone interpreted by investors as dovish.

The change comes months after Powell indicated plans to raise interest rates and cool down the U.S. economy, moves that run counter to President Donald Trump's expansionary moves, including last year's tax cuts.

Within just eight weeks, according to the Fed chairman, the central bank's base rate had gone from a "long way from neutral" to "just below" that level.

Additionally, policymakers also discussed how should the Fed change its statement after FOMC, particularly the language of "further gradual increases". "In addition, the effect of a stronger dollar and weaker foreign economies on trade could affect the creditworthiness of USA firms, particularly exporters and commodity producers".

U.S. Federal Reserve (Fed) said on Thursday that nearly all Fed policymakers expected another interest rate hike "likely to be warranted fairly soon".

In what was seen as a shift in tone from remarks last month, Mr Powell on Wednesday said the Fed's series of rate increases had brought policy to "just below" the range of estimates of neutral, where it neither spurs nor restricts the economy.

The minutes of the Fed's November 7-8 meeting showed that officials expressed concerns about a variety of threats, including the impact of tariffs, a slowing global economy and tightening financial conditions amid falling stock prices.

The minutes said that such a change would help to convey "the Committee's flexible approach in responding to changing economic circumstances", while market supposed that this could indicate possible changes for the Fed's rate hike decisions in 2019. At the September meeting, the Fed signaled that it would likely raise rates one more time this year, and it projected three more rate hikes in 2019.

"If you look down the road, you see challenges ahead, and they're challenges that are typical in a cycle", said Powell speaking earlier this month at the Federal Reserve Bank of Dallas.

The December gold contract was up US$10.20 at US$1,223.60 an ounce and the March copper contract was up 8.75 cents at US$2.81 a pound.

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. That could fall to two when officials update those forecasts at their Dec 18-19 meeting, Wrightson ICAP chief economist Lou Crandall said.

After the financial crisis erupted in 2008, the Fed kept rates at historically low levels to revive the ailing economy.

The Fed has been trying to strike a balance between not moving too fast and risking shortening the economy's longest running expansion versus not moving too slowly and risking the economy overheating.

"I do think over time folks will have to get used to the idea that we can and will move at any meeting", said Powell in a question-and-answer session in Dallas.

"What do you do?" said Powell in NY.

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

"It removes concerns of a Fed dead set on tightening up to a point where rates would intentionally slow down the economy", said Roberto Perli, an analyst at Cornerstone Macro, in a report Wednesday.



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