Fed's gradual rate hikes balance against risks: Powell

Alex Brandon  AP

Alex Brandon AP

"We also know that moving too slowly - keeping interest rates too low for too long - could risk other distortions in the form of higher inflation or destabilizing financial imbalances". Among them: "historically high" business debt, deteriorating credit standards and bigger appetite for risk-taking by investors. But signs of a slowdown overseas and almost two months of market volatility - including another sharp selloff last week - have clouded an otherwise mostly rosy USA picture in which the economy is growing well above potential and unemployment is the lowest since the 1960s.

The report card is included in the New York Fed's survey of primary dealers that each quarter elicits an assessment of the Fed's communication with markets and the public over the prior six to eight weeks, using a scale of zero, for "ineffective", to five, for "effective".

The stock market rallied on the speech, going up more than 400 points, or 1.75%.

Bond issuance has risen steadily this year to pay for President Donald Trump's tax cuts and spending increases.

Trump on Tuesday again blasted his hand-picked chief of the United States central bank, saying he was "not even a little bit happy" with his selection of Powell.

Speaking of the heading of Fed's monetary policy, a few policymakers expressed uncertainty about the timing of future rate increases.

"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.

US Life Expectancy Drops Due To Rise In Drug Overdose Deaths
Though constant, the rate has increased over time from about 10 suicides per 100,000 in 1999 to 14 per 100,000 in 2017. The suicide rate in 2017 for females aged 75 and over (4.0) was significantly lower than the rate in 1999 (4.5).

"They're making a mistake because I have a gut and my gut tells me more sometimes than anybody else's brain can ever tell me", the president added.

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

Trump has repeatedly attacked Powell over rate increases, calling the investment banker he selected previous year to oversee the world's most powerful central bank a "threat". He said the Fed was "way off base with what they're doing". The minutes said that Fed contracts in agriculture said that conditions "remain depressed", reflecting in part the drop in exports due to the trade battle.

The Fed chairman said the central bank is monitoring potential vulnerabilities in the banking system to ensure its continued stability.

Leading up to the 2008 financial crisis, mortgage lending practices had relaxed considerably while housing prices skyrocketed. And many financial institutions had relied on short-term, uninsured liabilities to fund longer-term investments.

"Powell said nothing to suggest that he or the majority of the FOMC think they'll be able to stop at the bottom of the range, after just one more hike", said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

But Powell said: "my view is that such losses are unlikely to pose a threat to the safety and soundness of the institutions at the core of the system and, instead, are likely to fall on investors in vehicles like collateralized loan obligations with stable funding that present little threat of damaging fire sales".

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