Powell’s bright picture sparks stock rally
WASHINGTON — Federal Reserve Chairman Jerome Powell cast a bright picture of the U.S. economy Wednesday and appeared to suggest that the Fed might consider a pause in its interest rate hikes next year to assess the impact of its credit tightening.
Powell’s comments ignited a huge rally on Wall Street, with the Dow Jones Industrial Average surging 617 points, its biggest oneday increase in eight months.
Referring to the Fed’s gradual increases in its benchmark rate, Powell said, “there is no preset policy path.” Rather, he said, the Fed will assess the most recent economic and financial data in deciding whether or how fast to raise rates.
Speaking to the Economic Club of New York, the chairman also suggested that interest rates appear to be just below the level the Fed calls “neutral,” where they are thought to neither stimulate growth nor impede it. That contrasted with a remark Powell made in October that the Fed’s policy rate was still a “long way from neutral.” His remark then had unsettled investors who feared it signaled that the Fed would continue raising rates well into the coming months.
The Fed chairman also said Wednesday that while some corporate debt loads have hit riskier levels, “we do not see dangerous excesses in the stock market."
The Fed has raised its benchmark short-term rate, now in a range of 2 percent to 2.25 percent, three times this year and is expected to do so again next month. But the likely pace of rate increases next year remains a subject of speculation.
The rate increases have gradually raised borrowing costs for consumers and businesses. Any slowdown or pause in the Fed’s rate hikes would be welcome news for a stock market that’s been battered by fears that the Fed’s continued credit tightening could end the long bull market. Higher rates tend to slow economic growth over time as well as pressure stock prices
In recent weeks, President Donald Trump has repeatedly attacked the Fed — and Powell personally — for their rate increases, which the president has blamed for any economic weaknesses or stock market turmoil. Critics have expressed worry that the president’s attacks threaten the Fed’s ability to operate free of political pressure.
Trump’s blunt public criticism of the Fed is without precedent. His predecessors took care not to directly attack the central bank’s rate policy out of concern that such criticism could backfire. Investors might, for example, question whether the Fed would raise rates, if it felt it necessary to control inflation.
Some have speculated that Trump might try to oust Powell, who was his hand-picked choice to lead the Fed. But most analysts see that as far-fetched. The law creating the Fed says such officials can be “removed for cause.” The courts ruled decades ago that “for cause” meant more than a policy disagreement with the president.