Powell: US economy and banks seem sturdy but face some risks

Powell: US economy and banks seem sturdy but face some risks

"The unemployment rate is 3.7 percent-a 49 year low, and many other measures of labor market strength are at or near historic bests", he said.

A few participants also expressed reservations about the timing of the next rate hike, suggesting that the benchmark rate - which determines the cost of borrowing on credit cards, mortgages and other loans - may now "be near its neutral level" and "further increases" could slow down the economy's expansion.

Powell "gave the market, and presumably President Trump, exactly what he wanted, which was an admission that the previously proposed path of future rate hikes was probably too aggressive", Oliver Pursche, chief market strategist at Bruderman Asset Management in NY, told Reuters. From the Fed's perspective, the interest rate hike in December will probably lead to an interest rate level that will no longer justify the automatism of a quarterly interest rate hike.

Powell has tried to delicately explain how the Fed is weighing future policy moves by using the analogy of walking into a pitch-black room filled with furniture.

The US central bank chairman has repeatedly tried to advise investors not to read too deeply into the Fed's economic forecasts, saying policymakers often don't have the ability to see that far into the future and decisions are formed based on incoming data from markets, the economy and business contacts.

Throughout October and into this month, partly in response to Powell's October 2 remarks and concerns over the impact of the trade war with China, the stock market experienced significant falls.

Here's the key line from Powell investors latched onto: "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".

The neutral rate can seem like a central bankers' Holy Grail: The "Goldilocks" setting for monetary policy, neither so low as to allow excess inflation nor so high as to weigh on the economy.

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"I'm not dancing or partying right at the moment", he said, adding that the Fed has talked about gradual rate hikes "for a very long time".

Next month's expected quarter-point increase would lift the central bank's target for the federal funds rate to a range of 2.25 per cent to 2.5 per cent.

Mr Powell's comments appear to implicitly reject arguments from President Trump that past interest rate rises have been a mistake. "We have to be thinking about how much further to raise rates and the pace at which we will raise rates".

The rate hike likely coming on December 19 would raise the benchmark lending rate, which influences borrowing costs throughout the wider economy, to 2.5 per cent. That would bring it to about the bottom of the September range of neutral-rate estimates from 15 governors and regional Fed presidents, who gave figures from 2.5 per cent to 3.5 per cent.

"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, '" said Powell.

His comments sparked a surge in a stock market that had struggled of late and came in the wake of criticism of the Fed's rate increases by President Donald Trump.

Powell noted the word "bubble" wasn't mentioned in the report, though he said some asset prices, such as corporate debt, were high relative to the past.

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