USA markets were sent soaring Wednesday after Fed chief Jerome Powell said borrowing costs were still historically low but only "just below" the neutral level, a rate that neither stimulates nor restrains the economy.
Stocks and interest-rate futures jumped, even while economists wrestled to interpret whether Powell meant to send a message or was simply misunderstood.
One irony of the market reaction to Mr. Powell's word choices is that he has spent considerable energy during his tenure as Fed chairman trying to emphasize the uncertainty of these estimates and to fashion a more plain-spoken approach to central-bank communications. To date, markets have considered quarter-end meetings in March, June, September and December as "live" meetings that result in rate changes.
The central bank expects the unemployment rate to remain historically low next year.
He tried to dismiss as premature questions over whether the Fed would need to raise rates above neutral to a level aimed at slowing growth.
His comments were interpreted by many investors as a signal that the Fed's three-year tightening cycle is drawing to a close.
Speaking at the Economic Club of NY on November 28, Jerome Powell outlined the Fed's decision to slow or pause interest rate movements in 2019 and would continue to monitor the nation's financial stability.
And a "couple" said the Fed might be near the neutral rate, meaning more rate hikes "could unduly slow the expansion", driving down inflation. Futures showed the amount of tightening priced in for 2019 slipped to 25 basis points - equivalent to just a single rate hike.More news: Preview for Ariana Grande's "Thank U, Next" Video Perfectly Tributes "Mean Girls"
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"A couple of participants noted that the federal funds rate might now be near its neutral level and that further increases in the federal funds rate could unduly slow the expansion of economic activity and put downward pressure on inflation and inflation expectations", said the minutes. It promises to confirm investor expectations that the Fed will raise its interest rate when it meets later this month.
Trump has repeatedly attacked Powell over rate increases, calling the investment banker he selected a year ago to oversee the world's most powerful central bank a "threat".
Stock markets began a broad descent toward a correction - a decline from the most recent peak of at least 10 per cent - in early October, just after Mr Powell had sounded a quite confident tone on the economy.
"His description highlights the significant uncertainty around estimates of neutral, a theme he mentioned at his speech at Jackson Hole in August", Jan Hatzius, chief United States economist for Goldman Sachs, wrote in a note to clients Wednesday.
A few officials expressed concern about rates moving too high too quickly. He kept up his criticisms with Powell on Tuesday, saying rising interest rates have hurt the economy. But that approach is no longer appropriate, Powell said.
"Over the past year, firms with high leverage and interest burdens have been increasing their debt loads the most", Mr. Powell said.
The transition comes as the Fed's target policy rate, left at 2 percent to 2.25 percent in November, grinds closer to the 2.5 percent to 3.5 percent range of Fed officials' views of where a rate that neither boosts nor cools a healthy economy lies.
Analysts think a rate hike next month is likely, but economists admit three rate increases for next year are beginning to look less certain, especially if stock market volatility increases, and consumer and business sentiment worsens in early 2019.