Traders believe the risk of fast-rising interest rates hurting the US economy and the stock market is now on the downside after Powell said monetary policy rate is now "just below" estimates of a level that neither brakes nor boosts a healthy economy.
"A couple of participants noted that the federal funds rate might now be near its neutral level and that further increases in the federal funds rate could unduly slow the expansion of economic activity and put downward pressure on inflation and inflation expectations", said the minutes.
"Powell is not suggesting that since they are just below the range they may stop soon".
After several years of steadily raising interest rates, Federal Reserve officials discussed this month a more flexible policy of setting rates.
Paul Ashworth, chief US economist at Capital Economics, said he expects two rate hikes in 2019, not the three the Fed has been projecting for next year. "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".
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The Fed fund futures contract expiring in January 2020, a heavily traded contract that reflects market expectations for where rates will be at the end of 2019, rallied sharply on record volume and pointed to an implied yield of 2.7 per cent. "But we know that things often turn out to be quite different from even the most careful forecasts".
Powell, in remarks just two weeks ago, had listed three possible challenges to growth in 2019: slowing demand overseas, fading fiscal stimulus at home and the lagged economic impact of the Fed's past rate increases. "Not even a little bit".
The Fed official believed that the central bank should pause on rate increases at this point, as US short-term interest rates are "close to neutral". Investors interpreted as Powell either changing his position on interest rates or attempting to correct the incorrect interpretation of his earlier remarks. "And I'm not blaming anybody, but I'm just telling you I think that the Fed is way off-base with what they're doing". "There is no preset policy path, " the Fed chief said. Bloomberg Economics anticipates three increases. "We now run a larger risk" that communications at the Fed's December meeting will be more hawkish than markets expect, he said.
With a December increase broadly expected, that meeting may stand out more for the fresh economic projections that policymakers will issue, providing a clearer view of how their perceptions of the economy and the proper path for rates may have changed in recent weeks.
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.
"If Trump were able to get those additional concessions from China at this meeting, and announce certainly no trade deal, but. a commitment to further negotiations to work towards a deal and in the interim not see further escalation, then that's something markets would latch onto", Page added.