Federal Reserve System: Powell says rates just below neutral level

Federal
Reserve Board Chairman Jerome Powell speaks at the Economic Club
of New York.
AP/Mark
Lennihan

• Federal Reserve Chairman Jerome Powell said in a speech
  Tuesday at The Economic Club of New York that rates are “just
  below” a neutral level.
• He said there is “a great deal to like” about the US
  economy, and added that the outlook remains solid.
• Powell flagged rising corporate debt levels as a
  potential risk in the future.

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Corporate credit levels and quality are top risks to the economy
but the outlook remains solid and rates are “just below” a
neutral level, Federal Reserve Chair Jerome Powell said
Wednesday.

A Federal Reserve report out earlier Wednesday showed some
American businesses have the most debt in two decades. Still,
officials “see no major asset class where valuations appear far
in excess of standard benchmarks,” Powell said in his speech at
the Economic Club of New York.

The Federal Open Market Committee is forecasting continued
growth, low unemployment, and inflation near 2%, he said, adding
there is “a great deal to like” about the outlook.

Market watchers were closely monitoring the speech for signs of
whether recent turbulence in equity markets or ongoing trade
tensions could influence the Federal Reserve’s rate path.

“Chairman Powell describing rates as ‘just below’ neutral is a
welcome change from the ‘long way’ from neutral he conveyed in
October,” said Adam Ozimek, an economist at Moody’s. “While this
change in rhetoric is relatively minor, it reinforces what other
FOMC members have been saying recently. These comments tilt the
odds just slightly in favor of fewer hikes in 2019.”

The Fed is expected to increase its benchmark interest rate at a
December meeting, but the outlook for next year is up in the air.
Officials have hiked three times this year, bringing the target
range to between 2% and 2.25% in September, and eight times since
2015.

Stocks have suffered a bruising couple of months, with the three
major US indexes wiping out their 2018 gains earlier this month.
Perhaps most troubling, high-flying technology stocks that led
the latest bull run have been at the center of recent sell-offs.
Meanwhile, ongoing trade tensions have cast uncertainty on the
outlook for economic growth.

President Donald Trump has directly blamed the Fed for trouble on
Wall Street, calling increasing rates “ridiculous.” There is a
consensus among economists and bipartisan lawmakers, however,
that increasing the cost of borrowing can be necessary to avoid
high levels of inflation.

On Tuesday, Richard Clarida, the Fed’s second in command, said
it’s “especially important” to pay attention to new economic data
as monetary policy approaches a neutral stance. The central bank
is set to release meeting minutes from its latest policy meeting
on Thursday.