Fed minutes: Further hike "warranted soon", debate opened on pause

US Fed chairman hints at higher rates following Trump attack

US Fed chairman hints at higher rates following Trump attack

The Fed has raised its benchmark short-term rate, now in a range of two per cent to 2.25 per cent, three times this year and is expected to do so again next month.

According Reuters, nearly all Federal Reserve officials at their last meeting agreed another interest rate increase was "likely to be warranted fairly soon", but also opened debate on when to pause further hikes and how to relay those plans to the public. He subsequently put pressure on Burns to keep interest rates down in the hope that unemployment would remain low in the run-up to the 1972 presidential election. It promises to confirm investor expectations that the Fed will raise its interest rate when it meets later this month. In the question-and-answer period following his speech, the Fed chairman agreed with the consensus view that monetary policy's goals should remain focused on low unemployment and stable inflation rather than targeting financial markets such as stocks.

It was a significant change in language compared to Mr Powell's previous comments, nearly two months ago, that United States rates are a "long way" from neutral. Not the outlook for the U.S. economy which, while expected to see a slower rate of growth in 2019, is still growing at a sufficient pace to justify further increases in the cost of borrowing.

"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.

"There is no preset policy", he said.

In October, Powell - who was appointed by Trump for the 10-year-term to succeed Obama's Fed chair Janet Yellen - said the Fed rate was "world's apart" from where it should be.

"Many participants indicated that it might be appropriate at some upcoming meetings to begin to transition to statement language that placed greater emphasis on the evaluation of incoming data in assessing the economic and policy outlook", the minutes said.

"Even if central bank policies are fully anticipated by the public, some adjustments could occur abruptly, contributing to volatility in domestic and worldwide financial markets and strains in institutions", according to the Fed report. The courts ruled decades ago that "for cause" meant more than a policy disagreement with the president.

For his part, Trump has sought repeatedly to shift blame for any economic troubles to the Fed and its rate increases.

In an interview this week with The Washington Post, Trump said he was not happy with Powell's support for further rate hikes. Investors have been bracing for higher interest rates in the face of possible inflation stemming in part from Trump's trade wars as well as the tax cuts he pushed through Congress late past year. The general consensus is that a rate hike in December will most certainly occur as the CME Group's FedWatch Tool, an algorithm that calculates the probability of a rate hike in a given month, is now showing an 82.7% chance the Federal Reserve will institute a fourth rate hike to end 2018. Some analysts are now saying the Fed may decide to raise rates only once or twice in 2019.

Policy makers provisionally penciled in three quarter-percentage-point rate increases for next year, according to the median of forecasts released in September's so-called dot plot.

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