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Federal Reserve Raises Benchmark Interest Rate
Topic Started: Mar 22 2018, 02:13 PM (61 Views)
Webster
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....Wednesday, the Federal Reserve raised the benchmark interest rate as the economy continues to improve; here's how the news went....

(The Guardian) Wall Street makes uncertain start ahead of Fed decision
Ahead of the Federal Reserve decision - with rates expected to rise and investors seeking hints about further increases this year - Wall Street has slipped back at the open. With technology stocks still under pressure, both from EU tax plans and the fallout from the Facebook controversy, the Nasdaq Composite has opened down 0.21%.

The S&P 500 has dipped 0.09% while the Dow Jones Industrial Average is down 27 points or 0.12%.

Neil Wilson, senior market analyst at ETX Capital, said: Markets are pricing in a roughly 90% chance of a hike this week, the first of three or four anticipated this year. So the focus is on the dot plot and the accompanying language from chair Jay Powell. For risk, markets will want the Fed to hold off indicating 4 hikes in 2018 but keep up its confident assessment of the economy. This will in large part depend on how policymakers assess inflationary pressures – if they think inflation is coming they might accelerate the path of rate hikes. But there is a much bigger risk that the Fed sticks to three in 2018 but raises forecasts for 2019 and that could knock equities and give a boost to USD more than indicating four hikes in 2018 might...

Since the last meeting in December inflation has picked up but the pace has not really accelerated beyond the most bullish scenarios seen already...

Currently the median dot plot suggests three hikes this year, and there is a chance that this could rise to four. However, it is perhaps more likely that the dots show greater confidence in three hikes (i.e., the doves come round to consensus), than the centrists join the hawks and go for four. Nevertheless, with the key doves not voting this year (Neel Kashkari and Charles Evans), it would imply that the actual FOMC dots of voting members is higher...

Trade and tariffs will also be a big focus having weighed not insignificantly in the last week. It may be the wrong moment for the Fed to signal more hawkish policy when we look at the potential negative impact of tariffs on GDP. We wait to see whether policymakers comment on the impact of tariffs and a trade war on the economy.
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Webster
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(The Guardian) Jerome Powell suggests we shouldn’t get too fixated on the dot-plot forecasts of where each Fed policymaker believe interest rates will be in future. We only had one decision today, and that was to raise the Funds rate, he says. No-one voted on what the ‘mean’ projection should be.

Asked about the neutral rate of interest, Powell says he and his colleagues believe is is still “quite low”
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Webster
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(The Guardian) Q: Would you like to hold more Fed press conferences?
Powell says he is considering whether to hold a press conference after every FOMC meeting (the committee meets eight times a year, but only hold a press conference four times). But he’s concerned that people might think he’s signalling a change to monetary policy (because investors don’t expect any big news at meetings without a press conference).
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Webster
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(The Guardian) Powell: Trump's tariffs are worrying businesses
--Q: What impact might the US government’s tariffs have on American monetary policy?
Fed chair Jerome Powell says that a number of FOMC committee members brought up the issue of tariffs at this week’s meeting. We don’t think that changes in trade policy should have any effect on the current outlook, he explains.

However, “a number of participants” reported that they had met with business leaders; trade policy has become a concern going forward with that group, Powell warns. Pressed on this point, Powell says there is a risk that the economic outlook could suffer if there was “more widespread retaliation” and actions back-and-forth between countries.

Today’s meeting comes less than two weeks after Donald Trump signed the order to impose tariffs on imports of steel and aluminum.
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Webster
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--Fed Chair Powell on the stock market:"In some areas, asset prices are elevated" He says "equity prices and commercial real estate prices in some markets" are elevated, but "we don't see it in residential housing, which is key" #stocks (Heather Long, Washington Post - 21 March 2018)

--Powell on financial stability risks: overall just moderate -- household and financial system leverage modest, funding not too short term, corporate leverage a bit elevated, asset prices in equities and CRE elevated. Capital and liquidity up, and corporate defaults only up a bit. (Josh Wright, iCIMS - 21 March 2018)

--Listening to Powell account for the SEP is quite instructive. It would appear that the Fed believes that tax cuts will result in a decent sugar high in growth, then dissipate quickly with little improvement in productivity associated with late cycle fiscal boost. (Joseph Brusuelas, RSM Economists - 21 March 2018)
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Webster
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(The Guardian) Powell: trade is a 'more prominent' risk
--Q: What impact would a US-China trade war have on the global economy?
Powell replies that trade wars are a “low profile risk” that has become “a more prominent risk to the outlook”. However he won’t comment on trade policy between countries.
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Webster
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--Powell: labor market getting tight "when we do see more meaningful upward move in wages." Implies he doesn't think it's tight now. Interesting. (Gerg Ip, Wall Street Journal - 21 March 2018)

--Fed Chair Powell says he has "been surprised" wages aren't increasing faster. To summarize: Fed sees higher growth, lower unemployment, but still just 1.9% inflation this year and 2.0% next. #jobs #wages (Heather Long, Washington Post - 21 March 2018)
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Webster
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(The Guardian) Powell press conference: snap summary
That’s it! Jerome Powell has wrapped up his first press conference as Fed chair after 45 minutes, around 15 minutes quicker than expected.

He rattled through the questions swiftly, giving sharp and clear answers - without any diversions into deep economic theory.

I was stuck by Powell’s warning that the new tariffs on steel and aluminium are worrying businesses leaders in America. The Fed must be a little anxious that a trade war will break out, even though Powell declined to talk about relations between Washington and Beijing.

Powell sounded confident about the US economy, and also tried to persuade reporters not to get too excited by the Fed’s famous dot charts. They’re only predictions of future rate hikes, not an oracle, after all. He hinted that he might change policy and hold a press conference after every Fed meeting -- so we might be seeing a lot more of Mr Powell in future.
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Webster
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(The Guardian) Ranko Berich, head of market analysis at Monex Europe, says Jerome Powell avoided any shocks today.

Indeed, the new Fed chair maintained the same cautious approach as his predecessor, Janet Yellen: “Jay Powell’s first Fed presser went more or less as expected, with the FOMC raising rates and making some vague hawkish noises about the future while maintaining its cautious approach to policy tightening.

“As with his testimony to lawmakers, the Fed Chair stuck to the “Powell Doctrine” of studiously avoiding commenting on political issues. If the Fed will react to trade or fiscal policy, it will do so only once it is looking directly at the economic effects of those policies.

“Powell noted that there is a range of opinion on the committee on the outlook, meaning as always that the Fed’s projections should not be taken as gospel. But today’s FOMC median projections did include a mild inflation overshoot in 2019 and 2020, yet this did not prompt a policy response, further underlining the fact that Yellen’s cautious approach to policy is alive and well.”
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