Powell: US economy healthy and rate hikes aren't automatic

Federal Reserve Chairman Jerome Powell speaks to the Economic Club of New York saying that interest rates remained

Federal Reserve Chairman Jerome Powell speaks to the Economic Club of New York saying that interest rates remained"low by historical standards and still provided stimulus to the economy

He tried to dismiss as premature questions over whether the Fed would need to raise rates above neutral to a level aimed at slowing growth.

On Tuesday, Trump tweeted that he was "not even a little bit happy" with Powell.

In his NY speech Wednesday, Powell did not dispute the widely held belief that the Fed will raise interest rates again in December, saying, "There is no preset policy" about tightening. Investors interpreted his remarks as evidence that the Fed might consider pulling back from quarterly rate hikes. For the stock market, he emphasised that current valuations are broadly in line with the long term levels and do not see "dangerous excesses" in equities. "Our gradual pace of raising interest rates has been an exercise in balancing risks".

"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", he said.

On Wednesday, Mr Powell also emphasised these uncertainties. On Wednesday he referenced a range, and in October he likely referenced a median. The S&P 500 Index gained 61.61 points, or 2.3%, to 2,743.78.

For while the governor has had to put up with abuse from backbench MPs, his opposite number in the United States, Jay Powell, has had to take criticism from the man who nominated him, Donald Trump. Trump tapped Powell a year ago to be Fed chairman after he decided against giving Janet Yellen a second term.

It was a "rookie mistake, " Omair Sharif, senior USA economist at Societe Generale, said Wednesday in a note to clients.

The words prompted traders and analysts to revise their latest economic forecasts that predicted the Fed might raise rates in December for the fourth time this year before approving a further three rate hikes next year.

US President Donald Trump has repeatedly attacked Powell for raising the benchmark lending rate but the Fed chief and other officials say the attacks have no influence on the deliberations of the independent central bank (AFP
Powell: US economy healthy and rate hikes aren't automatic

Fed Powell dampens expectations, but multiple rate hikes remain on the table.

"The hint from the Fed that they are closer to ending the current rate hike cycle caught the markets somewhat by surprise". Salesforce.com surged 10.3 per cent. "There is no preset policy path, " the Fed chief said.

Trump in recent weeks has repeatedly attacked the Fed - and Powell personally - for the central bank's interest rate increases, which the president has blamed for stock market turmoil and signs of economic weakness.

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

A "significant fall" in asset prices would make it more costly for nonfinancial businesses, which are already highly leveraged, to obtain funding, the Fed cautioned.

Powell has dismissed the unprecedented political attacks from Trump, saying they have no influence on deliberations of the independent central bank.

"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.

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