Stocks markets surge on hint of slower rate hikes

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Image Donald Trump nominated Jerome Powell for the role of Federal Reserve chairman

Simply stated, the Fed chief's remarks strongly indicated the central bank won't be raising its federal-funds rate almost as many times in 2019 as the "dot plot" of Federal Open Market Committee members' projections had implied. But that doesn't mean rates won't rise further, as most officials said another rate increase was likely, perhaps as soon as next month.

The yellow metal climbed and the U.S. dollar fell following Fed Chair Jerome Powell's comments on interest rate hikes in 2019. Stocks swooned on those remarks as investors bet the US central bank would need more rate hikes to prevent the economy from overheating.

In its report, the Fed warned that markets and financial firms will need to continue to adjust to plans for future rate hikes after years of low interest rates following the financial crisis.

He also explained the Fed's inaugural report on the stability of the United States financial system, released earlier Wednesday, noting that the central bank did not see "dangerous excesses" in stock markets.

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"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.

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

The Fed chief said in his speech that interest rates remain "low by historical standards" and still provide stimulus to the economy. Not the outlook for the USA economy which, while expected to see a slower rate of growth in 2019, is still growing at a sufficient pace to justify further increases in the cost of borrowing.

Ian Shepherdson of Pantheon Macroeconomics said markets were reading too much into Powell's statement and with historically low unemployment, the Fed may have no choice but to keep raising.

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Late last month he said he was very unhappy with the Fed because Obama had zero interest rates while he "maybe regrets nominating him to become the Fed chair."

"Even if central bank policies are fully anticipated by the public, some adjustments could occur abruptly, contributing to volatility in domestic and global financial markets and strains in institutions", according to the Fed report.

Mr Trump has criticised Mr Powell repeatedly this year, saying that the base rate is unnecessarily high and risks curtailing an economic boom in the US. I'm doing deals and I'm not being accommodated by the Fed. Investors have been bracing for higher interest rates in the face of possible inflation stemming in part from Trump's trade wars as well as the tax cuts he pushed through Congress late past year. It was 2.95 percent earlier this month, suggesting investors have scratched off a full rate hike from their forecasts of Fed policy. But some economists say three rate increases for next year are beginning to look less certain. The minutes show support for a fourth rate hike this year when the committee meets again, December 18-19, if the labor market and inflation continue as expected.

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