Fed Chief's Remarks On Economy And Interest Rates Cheer Investors

Fed Chief's Remarks On Economy And Interest Rates Cheer Investors

On Wall Street, futures for the Standard & Poor's 500 index and Dow Jones Industrial Average were both down by 0.3 percent after the indexes posting strong gains the day before.

Participants discussed the need to change the statement's wording to more sharply emphasize that future policy decisions would be based on incoming economic data.

In a speech that comes in the wake of another volatile market selloff, Powell said that interest rates are now "just below" estimates of neutral less than two months after saying rates were probably "a long way" from that point.

Powell noted that the economy is "near max employment, price stability" and major asset class valuations are "not far in excess", which could mean there may be more room to run for US equities. The reading badly missed market consensus as the number of newly built, unsold homes sitting on the market climbed to its highest level since 2009.

The Fed has raised its benchmark short-term rate, now in a range of 2 percent to 2.25 percent, three times this year and is expected to do so again next month.

Participants agreed that an additional rate increase was "likely to be warranted fairly soon". The Fed's benchmark federal-funds rate since then has been between 2% and 2.25% - or just below the lowest estimate.

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. Trump tapped Powell a year ago to be Fed chairman after he decided against giving Janet Yellen a second term.

After keeping rates at a record low near zero for seven years, the Fed three years ago began gradually raising rates, including three hikes this year.

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While Powell said Fed officials are monitoring these risks, they are not, on the whole, too anxious about them.

Powell did not reference the president's criticism in his speech, and there was no mention of the attacks in the Fed's minutes. But most analysts see that as farfetched.

"We know that things often turn out to be quite different from even the most careful forecasts", Mr Powell said on Wednesday.

The chairman added that the Fed regards no major asset class as significantly inflated, "as some did, for example, in the late 1990s dot-com boom or the pre-crisis credit boom". The wording was already chosen so as not to further fuel market turmoil.

Mr Powell said the Fed is paying "very close" attention to economic data even as it expects continued "solid" growth, low unemployment, and inflation near its 2 per cent target. Those trends, he said, were coinciding with inflation remaining "right on target" at the Fed's goal of 2 per cent annual price increases.

Minutes released yesterday from the Fed's last policy meeting also showed some policymakers believed going above neutral could slow the economy needlessly.

Higher interest rates tend to slow economic growth over time as well as pressure stock prices. "The market is putting too much weigh on the dovish arguments here; I don't think that is what he meant to signal".

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