Fed's Powell, in apparent dovish shift, says rates near neutral

Wall Street rallies after Powell says policy rate near neutral

Wall Street rallies after Powell says policy rate near neutral

Here's the key line from Powell investors latched onto: "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". Investors have overreacted to relatively nuanced comments from Mr Powell in the past, and it is possible some misread his comments by believing he was telegraphing an end to interest rate increases.

The Dow Jones Industrial Average rose 618 points to 25,366, a 2.5 per cent rise, in a surge that erased its November losses and put it back in positive territory for the year.

"Participants also commented on how the Committee's communications in its post-meeting statement might need to be revised at coming meetings, particularly the language referring to the Committee's expectations for "further gradual increases" in the target range for the federal funds rates", the minutes said.

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. "As always, our decisions on monetary policy will be created to keep the economy on track in light of the changing outlook for jobs and inflation". Those increases have raised its benchmark rate to a still-historically-low range of 2 per cent to 2.25 per cent. At the same time, Powell says the financial system and markets appear far sturdier than they did before the 2008 crisis.

Meanwhile, U.S. new home sales stood at a seasonally adjusted annual rate of 544,000 in October, 8.9 percent below the revised September level, the Commerce Department said.

"If you look down the road, you see challenges ahead, and they're challenges that are typical in a cycle", said Powell speaking earlier this month at the Federal Reserve Bank of Dallas. "All he is doing is pointing out an obvious idea", Porcelli wrote in a client note.

Cheslock added that some of Powell's remarks about the market not being in a bubble were reassuring as well.

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On Wednesday, Powell also emphasised these uncertainties. 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.

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-percent target.

Powell was not asked about escalating criticism of him from President Trump, who has complained that rising interest rates are hurting the economy. While interest rates were gradually moving to a neutral point, "we're a long way from neutral at this point, probably".

The value of stocks jumped for USA and Asia markets after the Federal Reserve chairman indicated interest rates would remain unchanged for the New Year.

But Fed members agreed they would offer fewer signals about the future in their public statements, insisting, as Powell did this week, that they would instead monitor economic data and respond accordingly. It was 2.95 percent earlier this month, suggesting investors have scratched off a full rate hike from their forecasts of Fed policy.

CHINA-US TRADE: Three days before President Donald Trump is due to meet his Chinese counterpart, Xi Jinping, the chief American trade envoy criticized Beijing's import taxes on American-made cars.

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