In remarks this week Fed chair Jerome Powell seemed to point to a possible pause in rate hikes as early as next year when he said rates were "just below" some estimates of the neutral rate that could serve as a temporary stopping point as the central bank assesses the impact of its policy changes so far.
Federal Reserve Chairman Jerome Powell ignited a market rally Wednesday by saying interest rates are "just below" broad estimates of a level considered neutral, a setting created to neither speed nor slow economic growth.
Powell was cited in the minutes as saying that "it might be appropriate to implement another technical adjustment in the IOER rate relative to the top of the target range for the federal funds rate fairly soon". Futures showed the amount of tightening priced in for 2019 slipped to 25 basis points - equivalent to just a single rate hike.
"We know that things often turn out to be quite different from even the most careful forecasts", Powell said at an Economic Club of NY luncheon on Wednesday.
Next month's expected quarter-point increase would lift the central bank's target for the federal funds rate to a range of 2.25 percent to 2.5 percent. After mid-year, Ashworth said he expects that "a slowdown in economic growth to below potential forces (the Fed) to the side lines". "This sounds like a more flexible approach to policy for 2019 than the impression created by the notion that the Fed has chose to lift the federal funds rate to neutral and that neutral was 3% or higher". "You slow down. You maybe go a little less quickly".
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On Thursday, the Fed's Open Market Committee published the minutes of a meeting in early November.
The minutes flagged the possibility that the Fed will make another adjustment to maintain control of the policy rate, by adjusting the separate interest rate on excess reserves, or IOER, which is now set at 5 basis points below the upper bound of the federal funds target range.
However, being just below neutral doesn't necessarily mean that the Fed is nearing its limit in terms of hiking rates as the range for neutrality can vary. But turning to financial stability, the main topic of his speech, he added, "We know that things often turn out to be quite different from even the most careful forecasts". Investors interpreted his remarks as evidence that the Fed might consider pulling back from quarterly rate hikes. "I think that's what we've been doing". Powell, who took over as Fed chairman in February, has said he wants to provide the public with "plain English" descriptions of what the central bank is up to. Bloomberg Economics anticipates three increases.
The continued strength of the American economy has made it more likely that the Fed will stick to its plans to raise rates in December, as part of its strategy to keep growth on an even keel into 2019.
The minutes of the Fed's November 7-8 meeting showed that officials expressed concerns about a variety of threats, including the impact of tariffs, a slowing global economy and tightening financial conditions amid falling stock prices. "There is a great deal to like about this outlook, " he said in a speech to the Economic Club of NY.