In what was seen as a shift in tone from remarks last month, Powell said Wednesday that 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.
Powell "gave the market, and presumably President Trump, exactly what he wanted, which was an admission that the previously proposed path of future rate hikes was probably too aggressive and opening to slowing the rate of hikes", said Oliver Pursche, vice chairman and chief market strategist at Bruderman Asset Management in NY.
The central bank expects the unemployment rate to remain historically low next year.
The minutes also revealed that Fed officials talked about modifying language in their policy statement, which now states that it expects "further gradual increases" in interest rates. "This sounds like a more flexible approach to policy for 2019 than the impression created by the notion that the Fed has made a decision to lift the federal funds rate to neutral and that neutral was 3% or higher".
The general consensus is that a rate hike in December will most certainly occur as the CME Group's FedWatch Tool, an algorithm that calculates the probability of a rate hike in a given month, is now showing an 82.7% chance the Federal Reserve will institute a fourth rate hike to end 2018. The fear of higher USA interest rates - fuelled by a surging economy - has been a key driver of a global equity sell-off over the past few months, while the dollar has soared as traders put cash into the USA looking for better, safer returns. "However, market pricing implies that while the Fed is likely to hike in December (about 80% priced), it will move only once in 2019".
Market participants interpreted that as a dovish signal for future rate hikes, compared with Powell's previous remarks in early October that rates were "a long way" from neutral, a level neither stimulative nor restrictive to the economy.
His clarification Wednesday didn't otherwise indicate any substantive change in the Fed's policy plans.
"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.
"What do you do?" said Powell in NY.
The Fed takes equally seriously the risks of hiking too quickly and shortening the economic expansion, and on the other hand of hiking too slowly and prompting higher inflation or financial instability, Powell 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 behaviour. Three of those increases have been under Powell.
The transition comes as the Fed's target policy rate, left at 2 percent to 2.25 percent in November, grinds closer to the 2.5 percent to 3.5 percent range of Fed officials' views of where a rate that neither boosts nor cools a healthy economy lies.
"We know that things often turn out to be quite different from even the most careful forecasts", Powell said at an Economic Club of NY luncheon on Wednesday.
The Fed has raised rates three times this year and says the current economy is in strong shape.
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