Federal Reserve Chairman Jerome Powell on Wednesday used a softer tone to describe where interest-rate policy presently is, in what could be construed as implying fewer interest-rate hikes to come.
“Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy — that is, neither speeding up nor slowing down growth,” Powell told the Economic Club of New York.
His comments on their face appear more dovish than in early October, when Powell said, in reference to the Fed’s interest rates, “we may go past neutral, but we’re a long way from neutral at this point, probably.”
Stocks extended gains after Powell’s remarks, with the Dow Jones Industrial Average
rallying 450 points. The dollar
There were some observers who said Powell wasn’t trying to shift expectations.
“If there has been one certainty of late it is the market’s ability to misinterpret Fed Chairman Powell,” said Tom Porcelli, chief U.S. economist at RBC Capital Markets. “Powell is not suggesting that since they are just below the range they may stop soon. All he is doing is pointing out an obvious idea.”
Related: Why economists insist Powell wasn’t as dovish as market thinks
The Fed’s summary of economic projections has a range of neutral estimates between 2.5% and 3.5% — so a likely December hike brings the upper end of the Fed’s target to 2.5%.
But that wasn’t the market’s read. Until Wednesday, markets had struggled since the Powell characterization of being a “long way from neutral,” with the Dow down about 8% from its October peak through Tuesday’s close.
Economic data meanwhile has for the most part been solid, if not good, with the last payrolls report showing 250,000 nonfarm jobs created in October. A report released Wednesday said the economy grew 3.5% in the third quarter.
Powell insisted there’s no preset policy path. “We will be paying very close attention to what incoming economic and financial data are telling us. As always, our decisions on monetary policy will be designed to keep the economy on track in light of the changing outlook for jobs and inflation,” he said.
Powell also said it may take a year or more for the economic effects of the Fed’s past interest rates to be fully realized.
Still, Powell said the economy was close to meeting the Fed’s mandate of promoting maximum employment and price stability. “There is a great deal to like about this outlook,” he said.
In the prepared remarks, he didn’t discuss whether the Fed was poised to hike interest rates again in December, or comment at all at the frequent barbs he’s encountered from President Donald Trump.
Read: Trump again lashes out at Powell, says he’s ‘not even a little bit happy’ about naming him Fed chief
Trading in fed funds futures imply an 83% chance of a hike in December, but just one more hike in 2019. The Fed’s dot plot implies three interest rate hikes in 2019.
Powell’s speech on Wednesday was more about the Fed’s inaugural financial stability report than what he called the “meat and potatoes” of jobs and inflation.
“In the rest of my comments, I will focus on financial stability–a topic that has always been on the menu, but that, since the crisis, has become a more integral part of the meal,” he said.
Read: Fed flags concerns over corporate debt in first-ever financial stability report
Laying out the report’s concerns over corporate debt, he characterized the overall risks to financial stability as “moderate,” a conclusion the report itself deliberately avoided.
“Individual policy makers will sometimes differ in their assessments and on the relative weight they put on particular vulnerabilities. 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,” he said.
A footnote pointed out the Fed’s staff assessed financial stability vulnerabilities as moderate as well.
During the question-and-answer session, Powell said monetary policy wasn’t the right tool to address financial stability. But he also acknowledged that the last few business cycles have ended not because of higher inflation but asset prices.
Steve Goldstein is MarketWatch’s Washington bureau chief. Follow him on Twitter @MKTWgoldstein.
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