Don’t Expect Big Interest Rate Hikes, Fed Chief Powell Says

Federal Reserve chief Jerome Powell said Wednesday he regards current interest rates at nearly a neutral level.

He addressed the Economic Club of New York in his first major presentation since he indicated last month the Fed is planning on more interest 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," he said.

Since his previous comments, that additional interest rates increases could be expected, stocks indices have fallen sharply, credit markets have shown indications of stress and investors are holding back, expecting the Fed to slow its interest rate increase.

"There is no preset policy path" in interest rate hikes, Powell said, noting that the Federal Open Market Committee, which sets rates, will make policy decisions based on developing conditions and not through a predetermined plan.

Earlier Wednesday, the Fed released its first Financial Stability Report. The 46-page document indicates banks are well-capitalized and have adequate liquid assets, but debt owned by businesses, relative to GDP, is historically high with signs of lowering credit standards.

The report also said household borrowing is in line with household income, and that insurers have strengthened their financial position and money market funds are less vulnerable than prior to the recession of a decade ago.

In his speech, Powell referred regularly to the report, which notes that the economy is growing at a three percent rate and inflation is holding at a manageable two percent. He also said that the financial system is "much stronger" than 10 years ago, at the end of the recession, noting increased levels of capital assets and better stress-testing procedures.

The federal funds rate is currently between two percent and 2.25 percent. A quarter-point increase is expected in December, but it is unclear if the Fed will seek additional hikes in 2019.

Because of the optimistic report and no mention of potential interest rate increases in Powell's address, the Dow Jones Industrial Average rose over 400 points in midday trading on Wednesday.

The speech came a day after President Donald Trump blamed the Fed for a recent decline in the stock market and plant closures at General Motors. In an interview with The Washington Post, Trump criticized higher interest rates and other Fed policies. Interest rates have risen during the Trump administration, but at a slow rate to deter inflation.

Although Trump insisted that Powell is not to blame, he nonetheless expressed disappointment with the Fed chairman, who he nominated.

"I'm doing deals, and I'm not being accommodated by the Fed," he told the Post. "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. So far, I'm not even a little bit happy with my selection of Jay [Powell]. Not even a little bit. 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."