U.S. stocks turn higher on Fed minutes; dollar recovers slightly

Powell defends Fed charge hikes amid Trump onslaught			 0					By		Marta Subat

Powell defends Fed charge hikes amid Trump onslaught 0 By Marta Subat

Federal Reserve Chairman Jerome Powell, faced with escalating attacks by President Donald Trump, defended the central bank's move to gradually raise interest rates, saying the policy is necessary after almost a decade of historically low rates.

According Reuters, nearly all Federal Reserve officials at their last meeting agreed another interest rate increase was "likely to be warranted fairly soon", but also opened debate on when to pause further hikes and how to relay those plans to the public.

Powell in his remarks Wednesday also raised the importance of policymakers staying flexible in charting a path of policy given that the effects of rate hikes show up with a lag - a point that was reinforced in the Fed's November minutes.

In the past week, the chairman of the Federal Reserve gave hope to stock buyers that the agency is close to finishing its long, drawn-out process of getting its target interest rate back to a normal level. He tried to dismiss as premature questions over whether the Fed would need to raise rates above neutral to a level aimed at slowing growth.

Equities erased earlier declines after the minutes of the Federal Open Market Committee gathering were released, while the yield on the 10-year Treasury note was around 3.03%, holding its decline from earlier.

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Powell, in his speech, said his overall view is that "financial stability vulnerabilities are at a moderate level". That contrasted with a remark Powell made in October that the Fed's policy rate was still well below neutral.


"His description highlights the significant uncertainty around estimates of neutral, a theme he mentioned at his speech at Jackson Hole in August", Jan Hatzius, chief United States economist for Goldman Sachs, wrote in a note to clients Wednesday.

On Wednesday, Mr. Powell pointed to the range of neutral-rate projections submitted by 15 Fed officials at their policy meeting in September, varying from 2.5% to 3.5%.

"Powell's dovish pivot reduces nagging concerns about vigorous interest rate hikes while providing the market with one of the best holiday gifts, a significant bounce in global equity markets", said Stephen Innes, head of Asia-Pacific trade at OANDA.

The Fed is expected to increase rates again in December and has estimated three more increases might be necessary next year.

If the Fed, as expected, raises the fed-funds rate next month to a band between 2.25% and 2.5%, that would leave it touching the bottom of the range of neutral estimates but four more quarter-percentage-point increases from the top.

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One irony of the market reaction to Mr. Powell's word choices is that he has spent considerable energy during his tenure as Fed chairman trying to emphasize the uncertainty of these estimates and to fashion a more plain-spoken approach to central-bank communications.

The spread on euro-dollar interest rates future is negatively correlated with emerging markets as higher interest rates in the U.S. dim the appeal of risky assets.

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.

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

"Given the volatility you've seen recently, it's probably quite reasonable to expect a little bit of a bounce". After mid-year, Ashworth said he expects that "a slowdown in economic growth to below potential forces (the Fed) to the side lines".

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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. Bloomberg Economics anticipates three increases.

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