Fed's gradual rate hikes balance against risks: Powell

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Federal Reserve Chair Jerome Powell appeared to signal a nearer end to the US central bank's interest-rate hikes on Wednesday, saying interest rates are now "just below" estimates of neutral less than two months after saying rates were probably "a long way" from that point.

The comments appeared to be something of a reversal from remarks Powell made in a PBS interview in early October, when he said rates were "a long way" from neutral.

Rising wages and robust consumer confidence mean there is a good chance that GDP growth will remain strong before slowing in line with more recent trends, some participants said.

The central bank is expected to raise rates once more next month, bringing the total to four this year.

While markets still expect a rate hike in December, Mr Powell said, "there is no preset policy path". "We will be paying very close attention to what incoming and financial data are telling us".

Mr Trump blames Mr Powell for the rate hikes that he claims are undermining his economic and trade policies.

Many economists also worry about potential economic damage caused by Trump's trade conflicts with China and other nations.

"Powell's comments suggest that 2019 may be more of a wait-and-see approach and the assumption of any hikes may be premature", said Tai Wong, head of metals trading at BMO.

"Powell is not suggesting that since they are just below the range they may stop soon". "We have to be thinking about how much further to raise rates and the pace at which we will raise rates". This should be clarified at the next meeting on December 18-19.

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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". "Certainly, all meetings are live now".

Powell has tried to delicately explain how the Fed is weighing future policy moves by using the analogy of walking into a pitch-black room filled with furniture.

Powell noted the word "bubble" wasn't mentioned in the report, though he said some asset prices, such as corporate debt, were high relative to the past. "You slow down. You maybe go a little less quickly. I think that's what we've been doing".

While the speech had "cleaned up after Powell's sloppy language last month", markets may have reacted too strongly to the comments, said Ed Al-Hussainy, senior rates analyst at Columbia Threadneedle Investments.

Neither Clarida nor Powell said definitively whether rate hikes should stop at neutral, and each stressed that level was very hard to estimate.

But policymakers may be divided over what to do after that, with some anxious that raising rates after December could "unduly slow" the American economy, just as signs of vulnerability are beginning to gather, the minutes showed.

Mr. Powell's October remark came during an unscripted moment at a moderated discussion in Washington.

According to Joseph LaVorgna, chief Americas economist at Natixis, "the Fed needs to stop raising rates".

In November, Fed policymakers agreed to hold rates steady, leaving the benchmark rate unchanged in a range of 2% and 2.5%.

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