The Federal Reserve Chairman is referring to higher rates after the Trump attack, to the government and to the economy

Thu 29 Nov 2018 – 06:02

[WASHINGTON] A day after President Donald Trump 's latest attack on the US central bank, Federal Reserve chief Jerome Powell hinted on Wednesday that the interest rate will rise, while saying that "we are not going to get the interest rate. there was no pre-established strategy.

Powell said in a New York speech that interest rates remain "low by historical standards" and continue to stimulate the economy.

He added that economists felt that the Fed's key rate – at 2.25% – was "just below" the estimate of neutral, a rate that neither stimulates nor restricts the economy.

US equity markets jumped after comments as investors interpreted them as meaning the central bank was on the brink of tightening, resulting in eight rate hikes since December 2015 following the financial crisis. World.

The benchmark, the Dow Jones Industrial Average, rose 2.5%, rebounding after the sharp losses recorded recently.

"He uttered these magic words," said AFP Gregori Volokhine, of Meeschaert Financial Services.

However, central bankers have never announced their intention to stop raising rates once they are neutral, which is a moving and debatable target. Instead, they will look at the economic data, especially inflation.

Pantheon Macroeconomics' Ian Shepherdson said the markets were reading too much in Powell's statement and that with a historically low unemployment rate, the Fed may have no choice but to continue to increase .

With estimates of a "neutral" rate of the order of 2.5 to 3.5%, the Fed is "only" at a lower end of the range, but there are three mid-range hikes, "Shepherdson said on a research note.

"DEMOCRATIC LEGITIMITY"

Trump again criticized Tuesday the head of the US central bank, himself carefully chosen, saying the Fed was "far from its base" and that the rate hike compromised the work he was doing for annihilate the US economy.

The president of the Federal Reserve has chaired three interest rate increases this year and is expected to increase sharply again in December.

"They make a mistake because I have an instinct and that my intestine tells me more sometimes that someone else's brain will never be able to tell me." said Trump in an interview with the Washington Post.

In his speech to the New York Economic Club, Powell again stressed that there was "no pre-established policy" for interest rates and said the central bank had made progress, because "going too fast could reduce the expansion".

But keeping rates "too low for too long" could create other risks, including an acceleration in inflation, he said.

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

But in response to questions, he compared the policy-making process to a walk in a dark room, forcing officials to slow down. "You feel your way more in the uncertainty of this kind."

Powell dismissed Trump's unprecedented political attacks, saying they had no influence over the deliberations of the independent central bank.

But many economists warn that the attacks could actually put pressure on the central bank for it to raise rates in order to demonstrate its independence vis-à-vis political influence.

Powell's speech focused on a new Fed report on the stability of the US financial system, but had an unusual comment:

"By clearly and transparently explaining our policies, we aim to strengthen the foundations of democratic legitimacy for the Fed to meet the needs of the American public."

NO HAZARDOUS EXCESSES

He also explained the Fed's inaugural report on the stability of the US financial system, released earlier Wednesday, stressing that the central bank did not see "dangerous excesses" on the stock markets. And he said the financial system was now "significantly stronger" than before the 2008 financial crisis.

"My own assessment is that while risks are above normal in some areas and below normal in others, the overall vulnerability of financial stability is moderate," Powell said.

While recognizing the growing concern over borrowing by already heavily indebted companies, it is unlikely for the time being that they "pose a threat to the security and soundness of the system" in the event of an economic downturn. .

At the same time, "the unresolved state of trade negotiations, Brexit negotiations, budget discussions between Italy and the European Union and disruptions related to cyber-cyber computing "remain risks for the global economy," he said.

AFP