Speaking at the Economic Club of NY on November 28, Jerome Powell outlined the Fed's decision to slow or pause interest rate movements in 2019 and would continue to monitor the nation's financial stability. "It could be soft enough to justify a pause as early as that meeting", Duy wrote in a blog post on Thursday. The minutes show support for a fourth hike this year if the labour market and inflation meet or exceed expectations. "While [Fed officials'] projections are based on our best assessments of the outlook, there is no preset policy path".
His speech to the Economic Club of NY sent markets soaring more than 600 points on Wednesday.
U.S. markets were sent soaring Wednesday after Fed chief Jerome Powell said borrowing costs were still historically low but only "just below" the neutral level, a rate that neither stimulates nor restrains the economy. From the Fed's perspective, the interest rate hike in December will probably lead to an interest rate level that will no longer justify the automatism of a quarterly interest rate hike.
Tim Duy, a veteran Fed watcher and professor of economics at the University of OR, believed that the Fed remains likely to hike in December, but there's a lot of uncertainty about the pace of rate hikes next year. Instead, officials suggested incorporating wording to emphasize a greater dependence on incoming data to govern future rate hikes.
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. After mid-year, Ashworth said he expects that "a slowdown in economic growth to below potential forces (the Fed) to the side lines".
In November, Fed policymakers agreed to hold rates steady, leaving the benchmark rate unchanged in a range of 2% and 2.5%.
The rate hike likely coming on December 19 would raise the benchmark lending rate, which influences borrowing costs throughout the wider economy, to 2.5 per cent.
"What a difference having a written and carefully vetted speech makes with respect to speaking freely and without a script, " Roberto Perli, a former Fed economist and partner at Cornerstone Macro LLC in Washington, told clients on Wednesday. Trump tapped Powell a year ago to be Fed chairman after he decided against giving Janet Yellen a second term.
Powell's dovish comments mean the probability of accelerated pace of rate increases in the United States is rather low, and that should burnish the appeal of all emerging market assets.
The dollar, which has outperformed bonds and the S&P 500 this year, benefiting from rising interest rates and safe-haven flows triggered by global trade tensions, fell back after Powell spoke.
It was the latest in a series of increasingly blistering attacks by the president on the Fed chief, who he appointed past year. The position of Fed officials is that the criticism will have no impact on the institution, which was set up to guard its political independence.
"Several participants were concerned that the high level of debt in the non-financial business sector, and especially the high level of leveraged loans, made the economy more vulnerable to a sharp pullback in credit availability", the minutes said. The minutes said that Fed contracts in agriculture said that conditions "remain depressed", reflecting in part the drop in exports due to the trade battle.