United States stocks turn higher on Fed minutes; dollar recovers slightly

Anna Jefferson
December 1, 2018

While the Fed is expected to raise rates by a quarter point at its meeting on Dec 19, it has forecast to have three more hikes next year.

"Powell took pains to state that the FOMC's rate projections are based on their best assessments of the economic outlook", Kevin Logan, chief U.S. economist for HSBC wrote in a Wednesday note to clients, referring to the policy-setting Federal Open Market Committee. "We have to be thinking about how much further to raise rates and the pace at which we will raise rates".

But policymakers may be divided over what to do after that, with some anxious that raising rates after December could "unduly slow" the American economy, just as signs of vulnerability are beginning to gather, the minutes showed.

"We keep thinking we're at maximum employment".

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He was succeeded by Democrat Bill Clinton. "He is preceded in death by his wife of 73 years, Barbara". Bush presided during the collapse of the Soviet Union and the final months of the Cold War.


However, being just below neutral doesn't necessarily mean that the Fed is nearing its limit in terms of hiking rates as the range for neutrality can vary.

Trump has tended to lash out at the central bank whenever there is volatility in the stock market, a phenomenon that is sometimes but not always related to the Fed. And neither should investor expectations about the Fed's future work. "Bloomberg Economics does not take it as a signal of the Fed dialing back on the number of expected rate hikes, but rather as an intent to be more flexible in setting policy as they approach the neutral rate".

Powell had earlier stirred a debate over tightening when he flagged potential headwinds to the economy amid a sell-off in equities and concerns over slowing global growth. The minutes showed a couple of participants felt the benchmark fed funds rate "might now be near its neutral level and that further increases in the federal funds rate could unduly slow the expansion of economic activity". That suggested to many investors that fewer rate increases might be on the way.

Stock markets began a broad descent toward a correction - a decline from the most recent peak of at least 10 percent - in early October, just after Powell had sounded a quite confident tone on the economy. "If US growth slows down next year, as expected, gold would benefit from higher demand", analysts including Jeffrey Currie said in a November 26 note that endorsed bullion as one of its top 10 trade ideas for commodities.

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

USA stocks had enjoyed a strong rally on Wednesday after Powell said US interest rates were "just below" neutral, less than two months after saying rates were probably "a long way" from that point. "And I'm not blaming anybody, but I'm just telling you I think that the Fed is way off-base with what they're doing".

After the financial crisis erupted in 2008, the Fed kept rates at historically low levels to revive the ailing economy.

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 destabilising financial imbalances. At that time, Fed policymakers indicated another hike in December, three more in 2019 and probably one more in 2020.

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Neither Clarida nor Powell said definitively whether rate hikes should stop at neutral, and each stressed that level was very hard to estimate. "There is a great deal to like about this outlook, " he said in a speech to the Economic Club of NY.

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