US Fed says another rate hike "likely to be warranted fairly soon"

President Trump Says the Federal Reserve Is a 'Much Bigger Problem Than China'

If you were surprised by Federal Reserve Chairman Jerome Powell's speech on Wednesday at which he hinted that rates were close to "neutral", you probably missed an earlier speech that offered a peek at the cards.

Minutes released yesterday from the Fed's November 7-8 policy meeting showed disagreements about the path of interest rates, with some policymakers worrying that tightening too fast could stem economic growth.

That stood in contrast with comments Powell had made in October when he said that the Fed's policy rate was still a "long way from neutral".

Chairman Jerome Powell's recent observations have suggested that while the USA economy remains on firm footing it also faces an array of risks, including a slowing global economy. In an interview Tuesday with the Washington Post, the president complained bluntly and at length about Powell, who was Trump's hand-picked choice to lead the Fed.

Mr Powell's comments appear to implicitly reject arguments from President Trump that past interest rate rises have been a mistake. "Our gradual pace of raising interest rates has been an exercise in balancing risks". "We also know that moving too slowly - keeping interest rates too low for too long - could risk other distortions in the form of higher inflation or destabilizing financial imbalances". "Our path of gradual increases has been created to balance these two risks".

With last year's deep tax cuts and fiscal stimulus from Congress, the world's largest economy continues to hum, producing steady job growth and driving the unemployment rate to its lowest level since 1969 even as inflation remains right at the Fed's two percent target.

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The broader Standard & Poor's 500-stock index climbed 2.3 per cent, and the tech-heavy Nasdaq rose 3 per cent. Instead, officials suggested incorporating wording to emphasize a greater dependence on incoming data to govern future rate hikes.

The Fed chair's latest statements come after a barrage of criticism from Trump.

Gregory Daco, chief USA economist at Oxford Economics, said Wednesday that, "I think we should refrain from an overly dovish interpretation" of Powell's comments.

The Fed has raised its benchmark short-term rate, now in a range of 2 percent to 2.25 percent, three times this year and is expected to do so again next month. The markets interpreted this as a signal that interest rate hikes were coming to an end and responded accordingly. But signs of a slowdown overseas and almost two months of market volatility have clouded an otherwise mostly rosy United States picture in which the economy is growing well above potential and unemployment is lowest since the 1960s. Since then, he and other Fed officials have sounded a bit more cautious, nodding to a slowdown in Europe, Japan and China.

"Powell's comments suggest that 2019 may be more of a wait-and-see approach and the assumption of any hikes may be premature", said Tai Wong, head of metals trading at BMO.

According to Joseph LaVorgna, chief Americas economist at Natixis, "the Fed needs to stop raising rates".

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