Fed rate hikes aren't automatic - Powell

Bloomberg

Federal Reserve officials earlier this month appeared on track to raise its key interest rate again in December, but they signalled that the pace of future rate hikes might need to slow given emerging risks to the economy, according to minutes of the discussions released Thursday.

The yellow metal climbed and the U.S. dollar fell following Fed Chair Jerome Powell's comments on interest rate hikes in 2019.

Mr. Powell didn't provide any more guidance on the likely path for rates, and he noted they remain low by historical standards.

The Fed has settled into a quarterly rate-hike cycle and is still expected to raise rates again next month, in what would be the fourth hike this year.

The spread on euro-dollar interest rates future is negatively correlated with emerging markets as higher interest rates in the U.S. dim the appeal of risky assets.

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

And he repeated the view that the Fed's policy rate - at 2.25 percent - is "just below" the estimate of neutral, a rate that neither stimulates nor restrains the economy. Prico Risk Management and Investments CEO Yossi Fraiman said, "We believe that the Bank of Israel's raising of interest will be very cautious due to the sharp fall in energy prices, which will moderate the rate of inflation".

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The possible policy shift occurred at a meeting at which the Fed also resumed debate on how best to manage short-term interest rates in the future, a decision that could influence the final target size of the Fed's still-massive balance sheet.

The Dow Jones rose by more than 600 points Wednesday after the chairman of the Federal Reserve said interest rates were close to neutral, continuing a rebound for the market.

Ian Shepherdson of Pantheon Macroeconomics said markets were reading too much into Powell's statement and with historically low unemployment, the Fed may have no choice but to keep raising.

"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 December CPI will be low and even negative and the rate of annual inflation will reach the lower range of the price stability target set by the government, which will signal a wait until the next rate hikes. While that issue has never arisen in regard to a Fed official, the courts ruled decades ago that "for cause" meant more than a policy disagreement with the president.

"I'm doing deals, and I'm not being accommodated by the Fed", he said in an interview with the Washington Post. "We already passed that, as the housing market shows", he said on CNBC, referring to this year's steady decline in home sales and construction - something analysts partly blame on higher mortgage rates.

The Fed has raised rates three times this year and says the current economy is in strong shape.

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