Fed Chair’s comments on slower hikes to boost EMs

Roman Schwartz
December 1, 2018

After several years of steadily raising interest rates, Federal Reserve officials discussed this month a more flexible policy of setting rates.

An expected December rate increase was further cemented into place.

But policymakers may be divided over what to do after that, with some anxious that raising rates after December could "unduly slow" the American economy, just as signs of vulnerability are beginning to gather, the minutes showed.

"Many baby boomers like me are, however, reaching an age where a good report is, 'Well, there are a number of things we should keep an eye on, but, all things considered, you are in good health, '" he said.

Late last month he said he was very unhappy with the Fed because Obama had zero interest rates while he "maybe regrets nominating him to become the Fed chair."

Minutes of the November 7-8 meeting of the Fed's rate-setting body, the Federal Open Markets Committee, show that officials expressed concerns about a variety of threats, including the impact of tariffs, a slowing global economy and tightening financial conditions amid falling stock prices. And neither should investor expectations about the Fed's future work. Officials largely think interest rates are still so low that they are encouraging borrowing, investing and spending-boosting overall economic growth.

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With a December increase broadly expected, that meeting may stand out more for the fresh economic projections that policymakers will issue, providing a clearer view of how their perceptions of the economy and the proper path for rates may have changed in recent weeks. At the September meeting, the Fed signaled that it would likely raise rates one more time this year, and it projected three more rate hikes in 2019.

"Participants also commented on how the Committee's communications in its post-meeting statement might need to be revised at coming meetings, particularly the language referring to the Committee's expectations for "further gradual increases" in the target range for the federal funds rate", the minutes said. But, when taken with the assessment of the Fed leader, it also holds the possibility of clouding the forecast for future rate hikes in 2019. "If US growth slows down next year, as expected, gold would benefit from higher demand", analysts including Jeffrey Currie said in a November 26 note that endorsed bullion as one of its top 10 trade ideas for commodities. "Not even a little bit". United States markets were sent soaring Wednesday after Fed chief Jerome Powell said borrowing costs were still historically low but only "just below" the neutral level, a rate that neither stimulates nor restrains the economy. He kept up his criticisms with Powell on Tuesday, saying rising interest rates have hurt the economy.

The Fed has been trying to strike a balance between not moving too fast and risking shortening the economy's longest running expansion versus not moving too slowly and risking the economy overheating. Bloomberg Economics anticipates three increases.

On Wednesday, Jerome Powell offered few explicit clues on how many hikes will be necessary in 2019, but repeated his view the Fed will have to be especially responsive to the data. The current system relies on the Fed paying interest on some reserves to set the federal funds rate.

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

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