There could be a possible roll back of the strategy of the United States Federal Reserve of continuing with the increase of interest rates in 2019 as indicated by the Fed Chairman Jerome Powell. The markets are expecting another rate hike in December this year.
The multiple hike in interest rates by the Fed had brought policy to "just below" the range of estimates of neutral, a level where rates neither purr or deter growth, said Powell in his remarks that were in opposing tome to what he had said last month. He had commented last month that the Fed still had a "long way" to before a equilibrium can be reached.
The comments by the Fed chairman saw the markets rise which had seen a downslide in recent months and was timed with the Fed policy on rate hikes being repeatedly criticised by US President Donald Trump.
There was an increase of 2.5 per cent in the Dow Jones industrial average by 618 points, to reach 25,366. This increase made up for the losses that it had incurred in the month of November and is now again in the positive for the current year.
There was an a rise of 2.3 per cent in the broader Standard & Poor's 500-stock index and 3 per cent increase in the tech heavy Nasdaq.
According to the median of forecasts released in September's so-called dot plot, provisions for three quarter-per centage-point rate increases for next year was accommodated for by policy makers. Wrightson ICAP LLC chief economist Lou Crandall said that could be brought down to two in a possible change in their forecast following a Dec 18-19 meeting of the policy makers.
The federal funds rate target would be lifted to a range of 2.25 per cent to 2.5 per cent if there is a quarter-point increase next month as is being expected. In September, the range of neutral-rate estimates from 15 governors and regional Fed presidents was pegged at between 2.5 per cent to 3.5 per cent and if there is a rate hike next month, the effective cumulative hike would be in the range of the September forecast of neutrality.
Powell however has left open plenty of scope for the Fed to continue to raise rates as it is dependent on the economic performance, even though his comments were significantly varied to what he had spoken while explaining the policy of the Fed last month. In the past there has been overreaction by investors to the relatively nuanced comments from Powell and there are possibilities that investors could also overreact now and misjudge the comments made by Powell to be indications about a reversing of the rate hike policy of the Fed.
"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 growth," Powell told the Economic Club of New York.
His Fed colleagues and many other economists "are forecasting continued solid growth, low unemployment and inflation near 2 per cent," Powell said.
"Our gradual pace of raising interest rates has been an exercise in balancing risks," Powell said. "We know that moving too fast would risk shortening the expansion. We also know that moving too slowly - keeping interest rates too low for too long - could risk other distortions in the form of higher inflation or destabilizing financial imbalances. Our path of gradual increases has been designed to balance these two risks, both of which we must take seriously."
(Source:www.straitstimes.com)
The multiple hike in interest rates by the Fed had brought policy to "just below" the range of estimates of neutral, a level where rates neither purr or deter growth, said Powell in his remarks that were in opposing tome to what he had said last month. He had commented last month that the Fed still had a "long way" to before a equilibrium can be reached.
The comments by the Fed chairman saw the markets rise which had seen a downslide in recent months and was timed with the Fed policy on rate hikes being repeatedly criticised by US President Donald Trump.
There was an increase of 2.5 per cent in the Dow Jones industrial average by 618 points, to reach 25,366. This increase made up for the losses that it had incurred in the month of November and is now again in the positive for the current year.
There was an a rise of 2.3 per cent in the broader Standard & Poor's 500-stock index and 3 per cent increase in the tech heavy Nasdaq.
According to the median of forecasts released in September's so-called dot plot, provisions for three quarter-per centage-point rate increases for next year was accommodated for by policy makers. Wrightson ICAP LLC chief economist Lou Crandall said that could be brought down to two in a possible change in their forecast following a Dec 18-19 meeting of the policy makers.
The federal funds rate target would be lifted to a range of 2.25 per cent to 2.5 per cent if there is a quarter-point increase next month as is being expected. In September, the range of neutral-rate estimates from 15 governors and regional Fed presidents was pegged at between 2.5 per cent to 3.5 per cent and if there is a rate hike next month, the effective cumulative hike would be in the range of the September forecast of neutrality.
Powell however has left open plenty of scope for the Fed to continue to raise rates as it is dependent on the economic performance, even though his comments were significantly varied to what he had spoken while explaining the policy of the Fed last month. In the past there has been overreaction by investors to the relatively nuanced comments from Powell and there are possibilities that investors could also overreact now and misjudge the comments made by Powell to be indications about a reversing of the rate hike policy of the Fed.
"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 growth," Powell told the Economic Club of New York.
His Fed colleagues and many other economists "are forecasting continued solid growth, low unemployment and inflation near 2 per cent," Powell said.
"Our gradual pace of raising interest rates has been an exercise in balancing risks," Powell said. "We know that moving too fast would risk shortening the expansion. We also know that moving too slowly - keeping interest rates too low for too long - could risk other distortions in the form of higher inflation or destabilizing financial imbalances. Our path of gradual increases has been designed to balance these two risks, both of which we must take seriously."
(Source:www.straitstimes.com)