Fed chair indicates United States interest rates near neutral

Federal Reserve Chairman Jerome Powell speaks at the Economic Club of New York's luncheon in New York

Speaking to the Economic Club of NY, 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's comments may assuage concerns about the Fed possibly going too far with rate increases, a criticism leveled by President Donald Trump. "From a financial stability perspective; however, today we do not see risky excesses in the stock market".

In an appearance earlier this month, Powell cited strong annual economic growth above 3% and unemployment at a 47 year low of 3.7%.

In the past, Powell has mentioned a number of looming risks to the economy, including the slowdown in global growth and the fading benefits of the tax cuts and government spending boost that took effect this year as well as the cumulative effect of the Fed's own rate hikes.

Although a December rate hike has been widely expected, the Fed's path next year has been more uncertain, with investors last month expecting even three rate hikes in 2019.

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

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According Reuters, 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.

After keeping rates at a record low near zero for seven years, the Fed three years ago began gradually raising rates, including three hikes this year.

The CME Group's FedWatch Tool, an algorithm that calculates the probability of a rate hike in a given month, is now showing an 82.7% chance the Federal Reserve will institute a fourth rate hike for December.

"Powell said nothing to suggest that he or the majority of the FOMC think they'll be able to stop at the bottom of the range, after just one more hike", said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

President Trump argued that the Fed's policies were damaging the economy and pointed to the recent stock market correction.

In an interview this week with The Washington Post, Trump said he was not happy with Powell's support for further rate hikes.

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"How concerned the Fed sounds about the current economic slowdown will be seen as an indication as to how quickly a rate pause might come", said Thu Lan Nguye, a currency strategist with Commerzbank in Frankfurt.

"As always, our decisions on monetary policy will be created to keep the economy on track in light of the changing outlook for jobs and inflation", Powell said. His remarks then led to an equity market sell-off as investors feared fast interest rate hike pace would slow down the economy.

Though Mr Powell's comments were markedly different from his characterisation of Fed policy last month, he left ample room for the central bank to continue raising rates, depending on the economy's performance.

A few participants expressed reservations about the timing of the next rate hike, suggesting that the benchmark rate, which determines the cost of borrowing on credit cards, mortgages and other loans, may now "be near its neutral level" and "further increases" could slow down the economy's expansion.

These more measured reads on Powell's comments, however, are not what Wall Street says it heard on Wednesday.

Trump also used the opportunity to once again blast Fed Chairman Jerome "Jay" Powell. Bloomberg Economics anticipates three increases.

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