Fed chair Jerome Powell softens line on interest rate rises


The U.S. faces only moderate financial risks despite elevated asset prices and concern over the possible impact of rising corporate debt, U.S. Fed chairman Jerome Powell said on Wednesday as the central bank released a broad overview of the health of credit markets and the financial system.

Other Fed watchers still expect at least one or two rate increases in 2019 before the central bank pauses to observe how the economy is performing.

Mr Trump, who has repeatedly criticised the Fed for its interest-rate increases, complained at length about Mr Powell in the interview.

Higher interest rates tend to slow economic growth over time as well as pressure stock prices.

Many economists and investors latched on to Powell's assessment that interest rates remain just below "neutral", suggesting a departure from comments the chair made in October that the economy is "a long way from neutral at this point, probably".

Tensions over trade, the turbulent Brexit discussions, and trouble in China and emerging markets could rock a U.S. financial system where asset prices are "elevated" and business credit quality may be "deteriorating", the U.S. Federal Reserve said in a first-ever report devoted to financial stability.

Mr. Powell is set to speak in NY on Wednesday about monetary policy and financial stability.

Trump's sentiments are not out of step with some economists, but many analysts say that the Fed will resist backing off a December increase to avoid looking like it is not independent from the president. "Not even a little bit".

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"Interest rates are still low by historical standards and they remain just below the range of estimates of that level that would be neutral for the economy - that is neither speeding up nor slowing down growth".

Trump told The Washington Post on Tuesday: "I think the Fed is a much bigger problem than China".

Trump this week also blamed the recent market sell-off and GM's decision to cut its workforce in part on Powell. Powell is due to speak later on Wednesday. I'm not going to say it's so much Trump ー that Trump has been sending mean tweets about Chairman Powell. US President Donald Trump's meeting with his Chinese counterpart Xi Jinping at the weekend is likely to hog investors' attention.

US equity markets opened higher, with little reaction when the Fed report was released a half an hour later. It described funding risks in the financial system as low, meaning the chance that mispricing of one asset - in 2007, for example, housing - triggers a run by investors that puts the solvency of USA banks at risk.

The report detailed four major risks factors to the stability of the economy: excessive leverage in the financial sector; funding risk, which refers to financial entities relying on sources of funding that can be rapidly withdrawn; excessive leverage in businesses and households; and overvaluation, known in extreme cases as a bubble.

"I think we are so enamored on those issues after 2008.it would be very hard for them to surprise us into a crisis one more time".

The Fed has included its views on financial stability in other documents and presentations.