Powell: US economy healthy and rate hikes aren't automatic

Fed Rate hike 'warranted soon'

Powell said on Wednesday that the economic effects of the Fed's policy tightening may take a year or more to appear.

Economists and investors have been scratching their heads this week over signals from the Federal Reserve, which left the future of U.S. monetary policy open to broadly divergent interpretations.

These more measured reads on Powell's comments, however, are not what Wall Street says it heard on Wednesday.

"Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy-that is, neither speeding up nor slowing down", Powell said. Any slowdown or pause in the Fed's rate hikes would be welcome news for a stock market that's been battered by fears that the Fed's continued credit tightening could end the long bull market.

The Dow Jones industrial average closed up more than 600 points, or 2.6 percent, Wednesday. But signs of a slowdown overseas and almost two months of market volatility - including a sharp selloff last week - have clouded an otherwise mostly rosy US picture in which the economy is growing well above potential and unemployment is the lowest since the 1960s.

Within just eight weeks, according to the Fed chairman, the central bank's base rate had gone from a "long way from neutral" to "just below" that level.

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Investors will watch for the minutes from the Fed's November 7-8 meeting, due on Thursday, for clues to policy in 2019.

"As always, our decisions on monetary policy will be created to keep the economy on track", he said.

Nevertheless, it is a tricky concept: Economists put the range between 2.5 per cent and 3.5 per cent.

In November, Fed policymakers agreed to hold rates steady, leaving the benchmark rate unchanged in a range of 2% and 2.5%.

"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. Powell flagged rising indebtedness and deteriorating loan quality among some US businesses as top vulnerabilities within the USA financial system, but otherwise described such risks as moderate. "All he is doing is pointing out an obvious idea", Porcelli wrote in a client note.

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But Wednesday's report stopped short of drawing "a bottom line conclusion" - a point Powell reiterated in his remarks, adding that the semiannual survey should be viewed as a routine checkup.

On Wednesday, Powell also emphasised these uncertainties. The president argued that the Fed is hurting the USA economy by raising interest rates.

"The neutral rate is an absurd concept". Then: Home sales have fallen to their slowest pace in two years, and low inventory in the housing market isn't helping.

The Federal Reserve chairman has presided over three interest rate increases this year and is widely expected to hike again in December.

"If there has been one certainty of late it is the market's ability to misinterpret Fed Chairman Powell". Investors interpreted his remarks as evidence that the Fed might consider pulling back from quarterly rate hikes. Oxford Economics now predicts a single increase in 2019 while JP Morgan and Goldman Sachs see four.

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