The US Federal Reserve Chairman has raised speculation the Fed might start easing-off on its series of rate hikes. Yet he has kept talking about it. "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.
"Recent public comments suggest Fed officials are amenable to parking the fed funds rate near neutral, which most FOMC participants estimate near 2.9 percent to 3 percent, and then pausing to assess the health of the economy as it adapts to less accommodative policy".
Powell unnerved investors on October 3 when he said in an unscripted comment that Fed policy probably was "a long way from neutral" and might eventually have to turn restrictive.
There are many reasons why Powell would pick now to begin shifting his footing. The chairman has repeatedly asserted the Fed's independence, and there was no sign that Wednesday's suggestion the central bank may slow the pace of rate hikes is related to Mr Trump's criticisms.
"What do you do?" said Powell in NY. The minutes show support for a fourth rate hike this year when the committee meets again, December 18-19, if the labor market and inflation continue as expected. Now they foresee three quarter point hikes.
Still, Powell sent the stock market soaring by suggesting that interest rates are just below the so-called neutral rate at which they will neither boost nor slow growth.
Speaking at the Economic Club of NY on November 28, Jerome Powell outlined the Fed's decision to slow or pause interest rate movements in 2019 and would continue to monitor the nation's financial stability.
The need for "further gradual rate increases" as appropriate to keep the current recovery on track has been a staple of recent Fed policy statements as the central bank nudged rates back toward more normal levels after a decade near zero.
The dollar, which has outperformed bonds and the benchmark S&P 500 stock index this year amid rising interest rates and safe-haven flows triggered by global trade tensions, was modestly higher. "We continue to see the risks around economic growth skewed to the upside based on trends borne out in the data".
"We also know that the economic effect of our gradual rate increases are uncertain, and may take a year or more to be fully realized", Powell said in NY.
Higher interest rates tend to slow economic growth over time as well as pressure stock prices according to Powell.
The possibly dovish shift in language on Wednesday came as President Donald Trump stepped up attacks on Powell, criticizing the Fed's rate hikes as undercutting his economic and trade policies.
"To me, this implies a willingness to be more patient in the lower end of the range of neutral", he told Reuters.
In November, Fed policymakers agreed to hold rates steady, leaving the benchmark rate unchanged in a range of 2% and 2.5%.
"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. "The Fed may be well served to steer the focus away from the concept of the neutral rate and toward the underlying economy itself".