Fed: Rate hike 'warranted soon'

Image Tim Arbaev iStock

Image Tim Arbaev iStock

But according to the president, it's all Powell's fault.

On Wednesday, Mr. Powell pointed to the range of neutral-rate projections submitted by 15 Fed officials at their policy meeting in September, varying from 2.5% to 3.5%. Any such slowdown - or pause - in its rate hikes would be welcome news for a stock market that has been battered by fears that the Fed's continued credit tightening could end the long bull market.

Markets have been jittery in the lead up to a critical meeting on Saturday between Trump and his Chinese counterpart, Xi Jinping, at the G20 summit in Buenos Aires. That could fall to two when officials update those forecasts at their December 18-19 meeting, Wrightson ICAP LLC chief economist Lou Crandall said. Trump has threatened to launch a third round of tariffs on $267 billion in Chinese goods if he and Xi fail to end their impasse.

"There is no preset policy", he said.

This week, a speech by Jerome Powell, the chairman of the US Federal Reserve, triggered strong price swings in financial markets. "The institutions at the heart of the financial system are more resilient".

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After Powell's speech, stocks immediately soared, with the Dow surging 617 points to close at 25366.43.

Eventually, the FOMC determined that a December interest rate hike was appropriate.

And now, the stock market loves Jay Powell. He has repeatedly bashed Powell, a Republican investment banker he appointed and described a year ago as a "wise steward". The US federal funds rate range is now 2.0-2.5 per cent.

Trump on Tuesday again blasted his hand-picked chief of the United States central bank, saying he was "not even a little bit happy" with his selection of Powell.

"I'm doing deals and I'm not being accommodated by the Fed", Trump told the Washington Post.

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Trump even added that sometimes decisions he makes with his "gut" matter more than what other people's brains tell him.

The possibly dovish shift in language on Wednesday came as US President Donald Trump stepped up attacks on Mr Powell, criticising the Fed's rate hikes as undercutting his economic and trade policies. Stocks swooned as investors bet the USA central bank would need more rate hikes to prevent the economy from overheating.

The report card is included in the New York Fed's survey of primary dealers that each quarter elicits an assessment of the Fed's communication with markets and the public over the prior six to eight weeks, using a scale of zero, for "ineffective", to five, for "effective".

Other external risks flagged by the central bank include the British government's plan to leave the European Union, China's slowdown and a significant increase in either corporate or sovereign debt by emerging market economies in Turkey and Argentina.

The minutes did raise a number of worries about Trump's get-tough trade policies, which have levied tariffs on billions of dollars worth of imports from China and other countries and prompted retaliation against US products. 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 USA picture in which the economy is growing well above potential and unemployment is the lowest since the 1960s. "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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But Powell's most recent words should be taken along with other recent remarks in which he showed concern for the global economic outlook.

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