December 10, 2018

US Fed chairman hints at higher rates following Trump attack

29 November 2018, 02:11 | Austin Hogan

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U.S. President Donald Trump walks on the South Lawn after returning to the White House in the early morning hours from a trip to Mississippi

"Not even a little bit", Trump told The Washington Post. "They're making a mistake because I have a gut, and my gut tells me more sometimes than anybody else's brain can ever tell me".

Trump adds that he is "not even a little bit happy" with Fed Chairman Jay Powell, whom he selected previous year. "Not even a little bit", the President said of the man he hand-picked for the job a year ago.

The chairman also suggested that interest rates appear to be just below the level the Fed calls "neutral", where they are thought to neither stimulate growth nor impede it.

Powell said his Fed colleagues and many other economists "are forecasting continued solid growth, low unemployment, and inflation near 2 percent".

The U.S. faces only moderate financial risks despite elevated asset prices and concern over the possible impact of rising corporate debt, U.S. Fed chairman Jerome Powell said on Wednesday as the central bank released a broad overview of the health of credit markets and the financial system.

Powell's remarks Wednesday lit a rally in stocks, lifting the major averages as much as 2% at their best levels.

"If the Fed were to keep interest rates near their current levels, so that the ratio of interest payments to debt did not change, the government would save $2.868 trillion on interest over the 10-year budget horizon", the report estimates.

Since his previous comments, that additional interest rates increases could be expected, stocks indices have fallen sharply, credit markets have shown indications of stress and investors are holding back, expecting the Fed to slow its interest rate increase.

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In a speech to the Economic Club of NY on Wednesday, Federal Reserve Chairman Jerome Powell said interest rates are just below the range of estimates that would be "neutral" for the economy.

But higher interest rates tend to slow economic growth, and since growth in the USA and other regions is already likely to slow down next year, investors are concerned the increases will hinder the economy.

Referring to the Fed's gradual increases in its benchmark rate, Powell said, "there is no preset policy path".

Powell has been gradually raising rates since he was confirmed to his position by Trump in January.

HOME SALES SINK AGAIN: The Commerce Department said sales of new US homes plummeted 8.9 percent in October and the number of newly built, unsold homes sitting on the market climbed to the highest level since 2009. "We will be paying very close attention to what incoming economic and financial data are telling us".

Higher interest rates tend to slow economic growth over time as well as pressure stock prices.

Other Fed watchers still expect at least one or two rate increases in 2019 before the central bank pauses to observe how the economy is performing. Trump has complained that the Fed is threatening to undo the economic stimulus being provided by the tax cuts and that its rate hikes are unnecessary because inflation has remained relatively low.

However, central bankers have never signaled they intend to stop raising rates once they hit neutral - which is a moving target and subject to debate.

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