Fed chair says economy is in ‘good health’ despite risks

US Fed chairman hints at higher rates following Trump attack

The Fed has raised its benchmark short-term rate, now in a range of two per cent to 2.25 per cent, three times this year and is expected to do so again next month.

Nearly all Federal Reserve officials at their last meeting agreed another interest rate increase was "likely to be warranted fairly soon", but also opened debate on when to pause further hikes and how to relay those plans to the public.

Powell's comments appeared to reverse previous remarks he made in early October, when he said that rates were probably still a "long way" from the level the Fed considers to be neutral, signaling a willingness to pressure interest rates even higher.

"The unemployment rate is 3.7 percent-a 49 year low, and many other measures of labor market strength are at or near historic bests", he said. 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. But signs of a slowdown overseas and almost two months of market volatility - including another 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.

Powell's comments sparked a surge in a stock market that had struggled of late and came in the wake of repeated criticism of the Fed's rate increases by President Donald Trump.

While he acknowledged the growing concern over increased borrowing by businesses that already carried a high debt load, he said that for now they were "unlikely to pose a threat to the safety and soundness" of the system in the event of a downturn.

But giving financial stability a marquee publication of its own shows the importance the issue has taken on as Fed officials strive to avoid the mistakes that led to the 2007 financial crisis.

Ian Shepherdson of Pantheon Macroeconomics said markets were reading too much into Powell's statement and with historically low unemployment, the Fed may have no choice but to keep raising.

The basket has rallied from a low of just under 88 in February this year and now trades at 96.20, just off its recent 1near 18-month high at 97.16.

In the week ahead, the Fed will see one of the last big economic statistics before its next interest rate decision. Since then, he and other Fed officials have sounded a bit more cautious, nodding to a slowdown in Europe, Japan and China.

Powell asserted that policy rate is below the neutral rate, or the rate at which it neither stimulates nor restrains economic growth by changing its interest rate policy.

There's no evidence that Trump's tweets have influenced the Fed, and nobody at the Economic Club's genteel luncheon had the temerity to ask Powell about that (at least during any of the video presentation I saw).

There might be fewer interest rate hikes in 2019.

In the Post interview, Trump said, "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".

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