Wall Street hurts new statements from Fed boss – US – Macro and politics

Federal Reserve Chairman Jerome Powell says current interest rates are almost neutral.

Powell held Wednesday's speech at the Economic Club of New York.

"Interest rates remain low in a historical context and are well below the level of many valuations indicating what is neutral for the economy.This means that interest rates do not stimulate slow down economic growth, said Powell, according to Marketwatch.

As late as October, Powell had stated that interest rates were "far from being neutral". It now denotes the risk of moderate financial stability.

In his speech on Wednesday, Powell said the Federal Reserve predicts solid growth over time, a low unemployment rate and inflation close to 2%.

On Wall Street, the statements were well received. Large indices rose and Wednesday at 7 pm, Dow Jones gained 1.7%, Nasdaq Composite, 1.7% and the S & P 500, 1.4%. The dollar weakens and long US rates fall a little.

"What Powell says is interpreted as more" duet "than what was expected, says Christian Lie in Danske Bank.

Hauk and pigeon:

• "Haukaktig" ("hawkish") and "duet" ("dovish") describe opposing beliefs about the interest that the economic image requires.
• "Hauker" believes that interest rates should be kept high or configured to control inflation.
• "Duer" thinks that inflationary pressures are so low that a low interest rate must be maintained.

"Duete" is a term describing what interest should have the economic image (see box).

Modified market conditions

Lie points out that the fact that Powell has changed his mind as to whether the key rate is at a neutral level may mean that he may think that the key rate is not so far from the level at which he begins to tighten up in the economy.

Danske Bank strategen highlights several factors that may have led Powell to change his mind about it:

"The most tempting thing is to think that Trump has nothing to do, even though he's made a critical statement about the Fed and the tightening of monetary policy. unwritten rule that incumbent presidents should not comment on monetary policy, but Trump was not bothered, Lie said.

"We have recently experienced market turbulence and weaknesses in the global economy and the US housing market.When the dollar is also strong and contributes to the fact that imported inflation is decreasing and thus eliminating some of the pressures Inflationary economy, the Fed's main task is to tighten the conditions of the US economy, he said.

Probably in December

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Powell's comments on the economy and monetary policy should be interpreted here, namely that the Fed is following its plan to increase its key rate in December, writes Bloomberg.

However, Powell gave an idea of ​​the number of hiccups that he deems necessary in 2019. Powell repeated that he felt the Fed should be particularly receptive to incoming macroeconomic data.

According to Lie, the market predicts a 80% upside in December. However, market prices in 2019 reach an altitude lower than that assumed by the Fed.

The "dot plot", which the central bank uses to communicate forecasts for future interest rate hikes, signals three interest rate hikes next year.

"We expect the Fed to rise in December, March and June, then the key rate will be around 3%, a neutral level.We believe the Fed will see to a greater extent that the economy will be higher. at this level, said Lie.