Markets

Dollar unfazed as Fed minutes signal December rate hike

Dollar unfazed as Fed minutes signal December rate hike

That appeared to signal that while the Fed may raise interest rates again next month, it isn't overly concerned about inflation, assuaging fears among many investors that rates will continue to climb for the foreseeable future.

"We know that things often turn out to be quite different from even the most careful forecasts", Powell said at an Economic Club of NY luncheon on Wednesday. Earlier this week the Bank of Israel Monetary Committee raised Israel's key rate from its historic low of 0.1%, where it has been anchored since March 2015, to 0.25%, its first rate hike since June 2011.

One irony of the market reaction to Mr. Powell's word choices is that he has spent considerable energy during his tenure as Fed chairman trying to emphasize the uncertainty of these estimates and to fashion a more plain-spoken approach to central-bank communications.

Minutes of the November 7-8 meeting of the Fed's rate-setting body, the Federal Open Markets Committee, show that officials expressed concerns about a variety of threats, including the impact of tariffs, a slowing global economy and tightening financial conditions amid falling stock prices.

After several years of steadily raising interest rates, Federal Reserve officials discussed this month a more flexible policy of setting rates.

In his speech, Powell noted that interest rates remain "just below" the so-called neutral range, the level that central bankers believe will neither accelerate nor halt economic growth.

Trump's blunt public criticism of the Fed is without precedent.




"We also know that the economic effects of our gradual rate increases are uncertain and may take a year or more to be fully realised", he said, adding that there was "no preset policy path".

In an interview with the Washington Post earlier this week, Trump blamed the Fed for recent stock market declines and General Motors's announcement of plant closures and layoffs. "They're making a mistake because I have a gut, and my gut tells me more sometimes than anybody else's brain can ever tell me".

"As always, our decisions on monetary policy will be created to keep the economy on track", he said.

Volume on USA exchanges was 6.85 billion shares, compared to the 7.67 billion average over the last 20 trading days.

Faced with this barrage of criticism, Mr Powell appears to be taking a more dovish line, which is why all of the main United States stock indices rose sharply on Wednesday night.

Trump has complained that the Fed is threatening to undo the economic stimulus being provided by the tax cuts and that its rate hikes are unnecessary because inflation has remained relatively low.

"My own assessment is that, while risks are above normal in some areas and below normal in others, overall financial stability vulnerabilities are at a moderate level", Powell said. "We saw a good lift up in gold price close to the highs we've seen over the past few weeks", said Jonathan Butler, analyst at MUFG Investor Services.


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