Fed minutes: Further hike "warranted soon", debate opened on pause

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Well, yes. However, in the same speech, Fed Chairman Jerome Powell reminded investors "there is no preset policy path" for the Fed.

United States central bankers believe another interest rate hike is due "fairly soon", boosting widespread expectations the Federal Reserve will raise lending costs next month, according to meeting minutes released Thursday. The FOMC is likely to link future interest rate decisions more closely to incoming data and then decide on a case-by-case basis.

That stood in contrast with comments Powell had made in October when he said that the Fed's policy rate was still a "long way from neutral".

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.

Minutes released yesterday from the Fed's last policy meeting also showed some policymakers believed going above neutral could slow the economy needlessly. This is probably because Fed Chair Jerome Powell stole most of the thunder the day before with his dovish remarks about the fate of future rate hikes.

Powell "gave the market, and presumably President Trump, exactly what he wanted, which was an admission that the previously proposed path of future rate hikes was probably too aggressive and opening to slowing the rate of hikes", said Oliver Pursche, vice chairman and chief market strategist at Bruderman Asset Management in NY.

Paul Ashworth, chief USA economist at Capital Economics, said he expects two rate hikes in 2019, not the three the Fed has been projecting for next year. The wording was already chosen so as not to further fuel market turmoil. At best, the coming meeting could see a shift in the majority of Fed representatives surveyed from three to two rate hikes in 2019.

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"Powell took pains to state that the FOMC's rate projections are based on their best assessments of the economic outlook", Kevin Logan, chief USA economist for HSBC wrote in a Wednesday note to clients, referring to the policy-setting Federal Open Market Committee.

"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", Mr Powell told the Economic Club of NY. It followed several weeks of market volatility that some investors had blamed on uncertainty over the Fed's intentions, among other things.

"There is a great deal to like about this outlook", Mr. Powell said. "As you get closer you tack a little bit more". It slowly began to raise them again in 2015 as the economy regained strength under Obama, and it has raised rates six times since Trump took office.

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. But that doesn't mean rates won't rise further, as most officials said another rate increase was likely, perhaps as soon as next month. Last month, Mr Powell said the Fed still had a "long way" to go before it reached that equilibrium.

"Over the past year, firms with high leverage and interest burdens have been increasing their debt loads the most", Mr. Powell said.

Factually, Powell's remarks on Wednesday and in October are both true.

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