Interest rate again in the end ?: The boss of the Fed indicates a change of course

economy

Thursday, November 29, 2018

The most powerful currency custodian of the United States is surprisingly expressed on the world stock markets: the largest central banker, Jerome "Jay" Powell, reports a possible suspension of the fixed rise in interest rates. The head of the Fed complies under the criticism of Trump?

US Federal Reserve Chairman Jerome Powell has announced a more cautious approach to future rate hikes. "We know that the economic impact of our rate hikes is uncertain," Powell said in a speech in New York. It can take up to a year or more for the effects to become visible.

Powell's new signals are exploding all over the world: in Asia, the Nikkei index has risen sharply in Tokyo. The main German index, Dax, is also expected to start trading in Frankfurt. The president of the Fed had mitigated with his statements the fear of rising interest rates as an economic crisis, it was said in Tokyo. His words clearly indicate that the tightening of US monetary policy is coming to an end.

Mr. Powell said his policy of gradual rate increases was designed to balance out the dangers. The current range of key rates of 2.0 to 2.25% is "just below" the estimated neutral level at which the economy will not be encouraged or slowed down.

Powell's statements have caused a stir in business circles and markets: the statement suggests that interest rate increases may not be as numerous as expected by investors, it was stated. on Wall Street. Economists badume the Fed should never raise rates above Powell's neutral level.

Powell's comments were a surprise to most investment dealers: up to now, investors and investment strategists – based on previous comments from US monetary authorities – were waiting for that the Fed gradually raise its key rates. It is not known if Jerome "Jay" Powell was influenced in his career. US President Donald Trump had criticized the monetary policy of the US Federal Reserve (Fed) only the day before. Until now, Powell is still opposed to any suspicion of undue influence on the Fed's monetary policy.

"The Fed is wrong"

"Until now, my choice of Jay does not even make me a little happy," Trump told the Washington Post the day before. "Not even a little, I do not blame anyone, but I tell you, I think the Fed is wrong about what it does." Trump himself appointed Powell to head the Central Bank a little over a year ago.

Until October 3, Powell had called the key rate far from being neutral. In light of Powell's recent statements, observers are now considering a possible reduction in interest rates next year. This means that the flow of cash that ends in the low interest rate phase could possibly be kept by the stock markets longer than expected. Regardless of this, badysts continue to be firm in their interest rate hike in December. Then, the interest rate in the dollar zone should increase by 0.25 percentage points to reach a range of 2.25 to 2.50%.

Last interest rate step in December?

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Powell continues to view the current economic situation as very favorable. It is still waiting for "solid" economic growth. The unemployment rate is expected to remain low and the inflation rate close to two percent. The Fed is actually aiming for an inflation rate of just under 2% in order to be able to stay out of a spiral downward spiral of falling prices. During the year, the Fed has already raised its interest rates three times, given the strength of the economy and rising inflation.

On Wall Street, Powell's new signals triggered significant price movements: the US dollar was put under pressure after the statements. The euro has reached 1.3888 dollar for the dollar. US government bond prices rose. The dwindling fear of a tight US monetary policy has raised US equity markets in the profit zone: The Dow Jones index of defaults closed with a more than 2.5% to 25,366 points. The broad S & P 500 rose 2.3% to 2,743. The composite index of the Nasdaq technology stock market rose from just under 3.0% to 7291 places.