The Fed’s No. 2 on Rate Hikes and Inflation

Fed Chairman Powell “Rate Hikes Are Not Automatic in Healthy Economy”

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Participants discussed the need to change the statement's wording to more sharply emphasize that future policy decisions would be based on incoming economic data.

The Fed needs to raise interest rates to stave off inflation but investors fear they may also slow down economic growth.

The Fed's gradual interest-rate hikes are meant to balance risks as it tries to keep the economy on track, Powell said, but offered few clues on how much longer the US central bank would raise interest rates in the face of a global slowdown and market volatility at home.

There wasn't much of a reaction in the financial markets on Thursday to the minutes from the Fed's early November meeting.

United States stock markets moved sharply higher on the news.

The Fed has raised interest rates every quarter this year. His speech will be parsed for signs of rate hikes next year, especially after Fed officials cautioned over global growth outlook and markets witnessed about two months of volatility. He also said the Fed should continue to raise interest rates.

Those comments followed a series of public attacks on the chairman of the Fed, a position that, while appointed by the president, is supposed to enjoy political independence. Next year, investors will hear from Powell after all 8 of the Fed's policy meetings, giving the markets even more chances to test their faith in the Fed chair.

After Powell's speech, stocks immediately soared, with the Dow surging 617 points to close at 25366.43. But most analysts see that as farfetched. But after that, officials said further hikes would not be on a preset course.

These more measured reads on Powell's comments, however, are not what Wall Street says it heard on Wednesday. He added that the Fed regards no major asset class as significantly inflated, "as some did, for example, in the late 1990s dot-com boom or the pre-crisis credit boom". The wording was already chosen so as not to further fuel market turmoil.

Investors will also focus on whether Powell addresses growing hostility from Trump, who said in an interview on Tuesday he is "not even a little bit happy" with the Fed chairman and that the central bank's policies were hurting the economy. Those trends, he said, were coinciding with inflation remaining "right on target" at the Fed's goal of 2 percent annual price increases.

"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. "We still expect the Fed to hike rates twice in the first half of next year, before a slowdown in economic growth to below potential forces it to the side lines", Paul Ashworth, chief USA economist at Capital Economics, wrote in a note.

"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.

He noted that unexpected events can trigger recessions, but "I don't know what it will be" that might halt the current expansion.

Federal Reserve Chairman Jerome Powell opened the door for a potential pullback in projected interest-rate hikes for 2019 following a widely expected increase in December.

"There's a lot of chatter that the Federal Reserve may reduce the amount of anticipated rate hikes in the future, and perhaps sell-off some of their balance sheet and that is helping out markets", Forrest said.

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