US Fed chief paints favorable economic outlook
(28 Nov 2018) Federal Reserve Chairman Jerome Powell cast a bright picture of the U.S. economy Wednesday and appeared to suggest that the Fed might consider a pause in its interest rate hikes next year to assess the impact of its credit tightening.
Powell’s comments ignited a rally on Wall Street, with the Dow Jones Industrial Average surging more than 200 points after his remarks were released.
Referring to the Fed’s gradual increases in its benchmark rate, Powell said, “there is no preset policy path.” Rather, he said, the Fed will assess the most recent economic and financial data in deciding whether or how fast to keep raising rates.
The chairman also suggested that interest rates appear to be just below the level the Fed calls “neutral,” where they are thought to neither stimulate growth nor impede it. That contrasted with a remark Powell made in October that the Fed’s policy rate was still well below neutral. That remark had unsettled investors who feared it signaled that the Fed would continue raising rates well into the coming months.
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. But the likely pace of rate increases next year remains a subject of speculation.
Speaking to the Economic Club of New York, the Fed chairman also said that while some corporate debt loads have reached riskier levels, “we do not see dangerous excesses in the stock market.”
The central bank’s rate increases have gradually raised borrowing costs for consumers and businesses. Any slowdown or pause in its rate hikes would be welcome news for a stock market that’s been battered by fears that the Fed’s continued credit tightening could end the long bull market.
While noting that some forms of corporate debt levels have become concerning, Powell said the financial system and markets appear far sturdier than they did before the 2008 crisis.
The Fed chairman said the central bank is monitoring potential vulnerabilities in the banking system to ensure its continued stability.
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