Powell's Interest Rate Comments Cheer Wall Street Despite Trump's Attacks

Andrew Cummings
November 29, 2018

Those remarks sent stocks down as investors bet the Fed would need more rate hikes to prevent the economy from overheating.

"We know that things often turn out to be quite different from even the most careful forecasts", Powell said at an Economic Club of NY luncheon.

USA crude oil futures settled down Dollars 1.27, or 2.5 percent, at USD 50.29 a barrel, the lowest since October 9, 2017 after U.S. crude inventories rose for a 10th straight week to the highest in a year.

"Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy - that is, neither speeding up nor slowing down growth", Powell told the Economic Club of NY.

Many economists also worry about potential economic damage caused by President Donald Trump's trade conflicts with China and other nations.

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).

The increases have infuriated Trump who has consistently criticized Powell and this week blamed recent stock market sell-offs and General Motors' decision to lay off 14,700 people in part on Powell.

The U.S. faces only moderate financial risks despite elevated asset prices and concern over the possible impact of rising corporate debt, U.S. Fed chairman Jerome Powell said on Wednesday as the central bank released a broad overview of the health of credit markets and the financial system. So far, I'm not even a little bit happy with my selection of Jay [Powell for Federal Reserve Board chair].

"I think the president got to him", Geltrude said, adding that Trump acted like a baseball team's manager berating the umpire for a bad call.

He argued that rising interest rates and other Fed policies were damaging the economy - as evidenced by GM's announcement this week that it was laying off 15 per cent of its workforce - though he insisted that he is not anxious about a recession.

"I'm doing deals, and I'm not being accommodated by the Fed", he said. Investors felt at that time that a series of aggressive rate hikes might put a halt to the strong economic growth of the past two years.

We also know that the economic effects of our gradual rate increases are uncertain, and may take a year or more to be fully realized.

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

But keeping rates "too low for too long" could create other risks, including accelerating inflation, he said. The markets interpreted this as a signal that the Fed is near the finish line in its rate hikes; the us dollar and bond yields declined accordingly.

U.S. stock markets jumped following the comments, as investors interpreted them to mean the central bank was close to the end of its tightening cycle, which has seen eight rate increases since December 2015 following the global financial crisis.

"I would not be surprised if they go with one more hike in December and then pause indefinitely to see what happens to the economy", Sohn said.

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