Federal Reserve

US stocks rise after Fed chief Powell says rates are ‘just below’ neutral, and markets are not showing ‘dangerous excesses’

  • Jerome Powell’s highly anticipated speech came a day after fierce attacks by US President Donald Trump on the central bank’s recent rate hikes
PUBLISHED : Thursday, 29 November, 2018, 1:42am
UPDATED : Thursday, 29 November, 2018, 4:44am

US stocks extended gains after the Federal Reserve chairman Jerome Powell said rates are “just below” the range of a neutral policy, in a highly anticipated speech on Wednesday.

Late in the afternoon session all three leading US stock indexes were up 2 per cent or more. The S&P 500 Index gained for a third straight day, led by health care equipment makers and software firms. The 10-year Treasury yield fell with the dollar after the release of Powell’s speech in New York.

Powell’s speech came a day after US President Donald Trump’s latest attack on the US central bank.

Powell hinted that although the key lending rate might move higher, there is no preset course.

Trump calls Federal Reserve ‘much bigger problem than China’

The Fed chief said that interest rates remained “low by historical standards” and still provided stimulus to the economy.

He said that while there was “a great deal to like” about US prospects, the Fed’s gradual interest-rate hikes are meant to balance risks as it tries to keep the economy on track.

“We know that things often turn out to be quite different from even the most careful forecasts,” Powell said in a speech that came in the wake of last week’s volatile market sell-off. “Our gradual pace of raising interest rates has been an exercise in balancing risks.”

He also said that the central bank did not see “dangerous excesses” in stock markets and that the financial system was “substantially more resilient” than it was before the 2008 financial crisis.

Powell offered few further clues on how much longer the US central bank would raise interest rates in the face of a slowdown overseas and market volatility at home. Instead he highlighted a new financial stability report the Fed published earlier on Wednesday.

Investors may expect the Fed to blink. It won’t

“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 at an Economic Club of New York lunch.

On Tuesday, Trump tweeted that he was “not even a little bit happy” with Powell. He also told The Washington Post that “the Fed is a much bigger problem than China”.

Additional reporting by Reuters