Fed officials express caution about pace of future hikes

Powell defends Fed charge hikes amid Trump onslaught			 0					By		Marta Subat

"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", Powell said in a speech on Wednesday.

Investors say a sustained market rally following the summit would hinge on there being substantive concessions from Trump, in particular whether Xi can persuade Trump to postpone a sharp tariff hike on Chinese goods due to take effect January 1.

"Westpac is forecasting rates will rise in December, and this will be followed by 3 further rate hikes in 2019".

"Neutral" means the rate neither stimulates nor drags on economic growth.

Market reaction reflected investors' fears the Fed might end up making the kind of mistake Powell talked about - tightening policy too much because of a false read on where neutral is, at a time when clouds had begun to form on the economic horizon.

In the past week, the chairman of the Federal Reserve gave hope to stock buyers that the agency is close to finishing its long, drawn-out process of getting its target interest rate back to a normal level. Futures showed the amount of tightening priced in for 2019 slipped to 25 basis points - equivalent to just a single rate hike. The fear of higher U.S. interest rates - fuelled by a surging economy - has been a key driver of a global equity sell-off over the past few months, while the dollar has soared as traders put cash into the United States looking for better, safer returns. Powell, who took over as Fed chairman in February, has said he wants to provide the public with "plain English" descriptions of what the central bank is up to. While the central bank is widely expected to lift rates, his comment was a far cry from his characterisation last month of them being "a long way from neutral".

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The hikes have prompted a flood of criticism from President Donald Trump, who has repeatedly attacked the Fed and Powell personally.

"We know that moving too fast would risk shortening the expansion", Mr. Powell said.

"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. "And I'm not blaming anybody, but I'm just telling you I think that the Fed is way off-base with what they're doing", he was quoted as saying in the report. The president has blamed the Fed for the steep two-month fall in the stock market and the possibility that his efforts to boost growth with a major tax cut will be thwarted by rising interest rates.

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. The benchmark rate, now at 2.00-2.25 percent, is within a quarter of a percentage point of the bottom of the Fed's range for neutral, but is also several quarter-point rate hikes below the mid-point estimate of 3 percent.

The Fed is expected to increase rates again in December and has estimated three more increases might be necessary next year.

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

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