Economists, Wall Street split on Fed signals

Economists, Wall Street split on Fed signals

Wall Street last month gave the Federal Reserve its worst grade since Jerome Powell took the helm of the US central bank earlier this year, docking points for a communications misstep early in October that sent USA stocks tumbling. The two-year Treasury yield-most reflective of the Fed rate policy-fell to 2.79% after an earlier high of 2.85%.

Powell has been gradually raising rates since he was confirmed to his position by Trump in January.

Paul Ashworth, chief USA economist at Capital Economics, said he expects two rate hikes in 2019, not the three the Fed has been projecting for next year.

"Powell took pains to state that the FOMC's rate projections are based on their best assessments of the economic outlook", Kevin Logan, chief USA economist for HSBC wrote in a Wednesday note to clients, referring to the policy-setting Federal Open Market Committee.

His speech to the Economic Club of NY sent markets soaring more than 600 points on Wednesday. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy.

Stocks swooned as investors bet the United States central bank would need more rate hikes to prevent the economy from overheating.

Powell stressed that future interest rate hikes aren't on a "preset policy path", which may suggest that the Fed would consider a pause in its rate hikes next year to assess the impact of its credit tightening.

In a speech that comes in the wake of another volatile market selloff, Powell offered few clues on how much longer the US central bank would continue tightening policy but he did say the policy rate, at 2-2.25 percent, is now "just below" the broad range of estimates of neutral, which in September was 2.5-3.5 percent.

But many economists warn that by attacking the Fed for raising rates, Trump is actually putting pressure on the central bank to raise rates to demonstrate its independence from political considerations.

Murder charges against brother in mansion fire slayings
Colts Neck, New Jersey, where Keith Caneiro and his family lived, is an affluent community around 50 miles south of New York City. He remains in jail without bail and is scheduled to appear in Monmouth County Superior Court in Freehold, New Jersey, on Friday.

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

Factually, Mr Powell's remarks on Wednesday and in October are both true.

There might be fewer interest rate hikes in 2019. "This was again on display today", RBC Capital Markets chief USA economist Tom Porcelli wrote in a note.

Neither Clarida nor Powell said definitively whether rate hikes should stop at neutral, and each stressed that level was very hard to estimate.

The minutes of the November meeting showed Federal Open Market Committee policymakers had on their agenda a series of issues, ranging from a tightening of financial conditions, global economic risks, "and some signs of slowing in interest-sensitive sectors", that had begun to sway their assessment of the economy.

This gap, which measures expectations on rate increases in the next year, has narrowed to 23 basis points, indicating that traders are not penciling in more than one increase in 2019, although the Fed's median projections still point to three increases next year. The FOMC is likely to link future interest rate decisions more closely to incoming data and then decide on a case-by-case basis.

The central bank chief said his colleagues and many other economists "are forecasting continued solid growth, low unemployment and inflation near 2 per cent".

In November, Fed policymakers agreed to hold rates steady, leaving the benchmark rate unchanged in a range of 2% and 2.5%.

"There is a great deal to like about this outlook", said Powell on Wednesday.

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