Why Did Fed Chairman Jerome Powell Back Off on Rate Hikes?

30 November, 2018, 18:38 | Author: Eric Barnett
  • Bloomberg

The words prompted traders and analysts to revise their latest economic forecasts that predicted the Fed might raise rates in December for the fourth time this year before approving a further three rate hikes next year.

That stood in contrast with comments Powell had made in October when he said that the Fed's policy rate was still a "long way from neutral".

However, central bankers have never signaled they intend to stop raising rates once they hit neutral - which is a moving target and subject to debate. That appeared to signal that while the Fed may raise interest rates again next month, it isn't overly concerned about inflation, assuaging fears among many investors that rates will continue to climb for the foreseeable future.

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

United States stock markets jumped following the comments, as investors interpreted them to mean the central bank was close to the end of its tightening cycle, which has seen eight rate increases since December 2015 following the global financial crisis.

The rate increases have gradually raised borrowing costs for consumers and businesses.

"Over the past year, firms with high leverage and interest burdens have been increasing their debt loads the most", Mr. Powell said.

US Fed chairman hints at higher rates following Trump attack
Dollar weakens as cautious Fed leads to rate-hike rethink

Powell said that "there is no preset policy path" for future rate hikes and the current level for the Fed's benchmark rate was very close to "neutral", the point where the Fed is neither stimulating economic growth or slowing growth.

"Neutral" means the rate neither stimulates nor drags on economic growth.

Powell has dismissed the unprecedented political attacks from Trump, saying they have no influence on deliberations of the independent central bank. The law creating the Fed says such officials can be "removed for cause".

Powell said that the outlook for the US economy remains solid and that interest rates are almost within a "neutral" range.

In recent weeks, President Donald Trump has repeatedly attacked the Fed - and Powell personally - for their rate increases, which the president has blamed for any economic weaknesses or stock market turmoil.

In an interview this week with The Washington Post, Trump said he was not happy with Powell's support for further rate hikes. And Narendra Modi, the Indian prime minister, has recently launched a series of attacks on the Reserve Bank of India for raising interest rates too quickly. "We already passed that, as the housing market shows", he said on CNBC, referring to this year's steady decline in home sales and construction - something analysts partly blame on higher mortgage rates. At that time, Fed policymakers indicated another hike in December, three more in 2019 and probably one more in 2020. 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.


Recommended:

  • Syrian air defence down several 'enemy targets' in southern Syria

    Syrian air defence down several 'enemy targets' in southern Syria

    It is not yet clear whether the S-300s were among the air defense systems used in the Thursday night counterattacks. State media quoted a military source but did not specify what the target was or where it came from.
    Chinese president arrives in Argentina for G20 summit, state visit

    Chinese president arrives in Argentina for G20 summit, state visit

    In a fabled 2011 interview with China's state broadcaster Xinhua, Trump allegedly rattled off 20 books he'd read about China. Trump noted the possible auto tariffs as a negotiating tool with the European Union in The Wall Street Journal interview.
    Steph sends handwritten letter to girl with shoe question

    Steph sends handwritten letter to girl with shoe question

    In a handwritten letter that he tweeted, Curry wrote that he has spent the last two days trying to fix the issue with Under Armor. Riley, whom he called a deep "thinker" who attends Napa Valley Language Academy, selected the Curry 5s as her sneaker of choice.
  • All clear given at Walter Reed Medical Center

    All clear given at Walter Reed Medical Center

    The entirety of the medical campus was placed on lockdown, with no one allowed in or out until the facility had been cleared. He tweeted that he and about 40 others were in a hospital conference room when the shooting was reported.
    UNC dumps Fedora, hours after loss to NC State in OT

    UNC dumps Fedora, hours after loss to NC State in OT

    If fired "without cause", the university would owe him the remainder of his contract, which is a little more than $12.2 million. Since being removed as the Longhorns coach, Brown served as a college football analyst for the past five years.
    The first host nation to exit that early - 28-Nov

    The first host nation to exit that early - 28-Nov

    First, congratulations, yet again, to Ireland for their clever and intelligent handling of their coaching succession. Former Wallabies skipper Stephen Moore and New Zealand Sevens legend DJ Forbes also earned special merit awards.
  • Floyd Mayweather and DJ Khaled settle with SEC over cryptocurrency promotions

    Floyd Mayweather and DJ Khaled settle with SEC over cryptocurrency promotions

    Mayweather failed to disclose that he'd received $300,000 from three different ICO issuers, including $100,000 from Centra Tech . DJ Khaled , on the other hand, paid $50,000 in disgorgement, $100,000 penalty, and $2,725 in prejudgment interest.
    US life expectancy drops again, overdoses climb

    US life expectancy drops again, overdoses climb

    All told, the U.S. recorded 2.8 million deaths in 2017, with middle-aged deaths making the biggest impact on life expectancy. Overall, Americans could expect to live 78.6 years at birth in 2017, down a tenth of a year from the 2016 estimate.
    Banned Smith, Warner help Australia pacers prepare for Test series against India

    Banned Smith, Warner help Australia pacers prepare for Test series against India

    Warner appeared in the net session and Cummins and Hazlewood were also seen getting some tips from coach Justin Langer. After losing the opener in Brisbane, India levelled the series in the third and final T20I in Sydney on Sunday.
  • G20 Summit 2018: Who Will Donald Trump Be Meeting?

    G20 Summit 2018: Who Will Donald Trump Be Meeting?

    He said Trump "gets along" with Putin, as he does with the leaders of a number of the G20 countries. A meeting with Trump has not been ruled out by the White House.
    Nasa's Mars InSight probe touches down on red planet

    Nasa's Mars InSight probe touches down on red planet

    And late Monday, mission scientists were able to confirm that the spacecraft's twin 7-foot-wide solar arrays have unfurled. A pair of cameras will help Earth-based scientists see the deployment of the instruments.
    British politician questions Facebook over Russian data collection

    British politician questions Facebook over Russian data collection

    Allan said consumers click on a user agreement when they sign up for Facebook, giving the firm permission to share user data. The documents were not released at the hearing, but the member, Damion Collins, referenced them during questioning.


Popular

LeBron James hints that his son will play for Duke
LeBron reacts to Lonzo Ball spraining his ankle in the loss and explains what it means to lose both of the team's point guard. Phoenix had their key players in this game and contiued their recent trend of starting Booker at the point guard spot.

Trump says GM should repay US taxpayers for bailout
But GM did say last month it expects to spend $1 billion more for commodities like steel and aluminum next year. Brown said he and Trump didn't talk about the president blaming the closure of the Lordstown plant on him.

Amazon adds antenna service for satellite data; courts space industry
Meanwhile, Lockheed Martin Space has already firmed up plans to integrate AWS Ground Station with its new Verge antenna network. At present, there are about 2,000 satellites orbiting the earth, which is expected to rise to about 16,000 in the next 10 years.

Vorskla Poltava v Arsenal: Hosts throw doubt on Arsenal game going ahead
Eddie Nketiah is among a host of youngsters named in the starting eleven for Arsenal as they face Vorskla in the Europa League . The Welshman stepped up to take and slotted the ball into the bottom corner.

German police raid Deutsche Bank over suspected money laundering
According to the report, numerous bank records have been seized as part of this raid . Department of Justice is still ongoing.

Villa owned by ‘friend’ of Crown Prince searched in Khashoggi case
The search comes after US President Donald Trump was been accused of not telling the truth in response to the murder of Khashoggi. After initially saying he had left the consulate alive, the Saudi administration admitted weeks later that he was killed there.

Cohen pleads guilty to lying about Russian Federation real estate deals
Cohen told the court he lied to Congress about Trump's Moscow tower in order to be consistent with his political positions. Cohen also said he sent an email to the spokesman for Russian President Vladimir Putin as part of the potential deal.

Bitcoin Futures To Be Launched By Nasdaq
Major US stock exchange Nasdaq aims to launch its Bitcoin futures products in the first quarter of 2019, Bloomberg has reported . According to one source, Nasdaq's futures will be based off Bitcoin's price on several spot exchanges, as compiled by VanEck .

Wedding photographer has sex with guest, urinates on tree during reception
Mehta's sister is telling a different story, saying that Katie may have unknowingly been given spiked drinks. Authorities in Texas say a couple's big day was marred by the actions of their wedding photographer.

Neymar inspires PSG to leave Liverpool in danger in Champions League
Jordan Henderson, James Milner and Gini Wijnaldum bring the same exceptional dimensions to their game, albeit in varied roles. The result also ensured that Thierry Henry's hapless visitors will now even miss out on qualification for the Europa League.