With the Federal Reserve expected next month to raise rates to what some USA central bankers believe is at or near a neutral level, Chairman Jerome Powell is retuning his message to signal a more cautious approach on further rate hikes next year.
"The health of the economy gradually but steadily improved, and about three years ago the [Fed] judged that the interests of households and businesses, of savers and borrowers, were no longer best served by such extraordinarily low rates", he said.
In an interview this week with The Washington Post, Trump said he was not happy with Powell's support for further rate hikes. This should be clarified at the next meeting on December 18-19.
He said then that growth overseas was likely to weaken and that U.S. fiscal stimulus, which had goosed consumption, would soon fade.
A few participants who agreed further rate increases were likely to be warranted also "expressed uncertainty about the timing" as Fed officials discussed how to communicate a possible change in their approach to any further hikes.
That sparked fears that rates could go higher than expected and many investors cite those remarks as the reason for the stock market sell-off in October and November.
The Fed members' comments initially appeared to comfort investors. "Gold will face a longer period of Fed tightening before the interest rate cycle turns in 2019".
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On Wednesday 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.
While numerous Fed watchers saw the remarks as nothing new, many investors heard it as a signal that the central bank was far from finished raising interest rates. The minutes showed a couple of participants felt the benchmark fed funds rate "might now be near its neutral level and that further increases in the federal funds rate could unduly slow the expansion of economic activity". But, when taken with the assessment of the Fed leader, it also holds the possibility of clouding the forecast for future rate hikes in 2019.
Stock markets began a broad descent toward a correction - a decline from the most recent peak of at least 10 percent - in early October, just after Powell had sounded a quite confident tone on the economy. Federal Reserve Chairman Jerome Powell ignited a market rally Wednesday by saying interest rates are "just below" broad estimates of a level considered neutral, a setting created to neither speed nor slow economic growth. That sets the ideal environment for the Fed to continue its slow increase of borrowing rates. And Powell's own communications plans to end each meeting with a news conference starting next year mean he needs a clear message for each meeting, starting next month.
"Given the volatility you've seen recently, it's probably quite reasonable to expect a little bit of a bounce".
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.
Higher interest rates tend to slow economic growth over time as well as pressure stock prices according to Powell.
"There is a great deal to like about this outlook", said Powell on Wednesday. Bloomberg Economics anticipates three increases.