Fed policymakers signal turning point on rate-hike path

US consumer borrowing climbs 7.73 pct in October from a year ago

WASHINGTON/INDIANAPOLIS, Dec 8, (Agencies): The US central bank is flagging a turning point in monetary policy, as a Federal Reserve policymaker on Friday backed interest rate hikes in the “near term” but nodded to increasingly less certainty ahead.

Speaking at an event in Washington, Federal Reserve governor Lael Brainard said the economic picture was broadly positive but that risks were growing overseas and in the corporate debt markets at home. Tailwinds, she said, are fading as global growth slows, financial conditions tighten, and the boost from fiscal stimulus moderates.

“The gradual path of increases in the federal funds rate has served us well by giving us time to assess the effects of policy as we have proceeded,” she told the audience. “That approach remains appropriate in the near term, although the policy path increasingly will depend on how the outlook evolves.”

Speaking less than an hour later, St Louis Federal Reserve bank president James Bullard repeated his call for the Fed to pause its current cycle of interest rate increases, saying the central bank may already be restricting the economy and noting that inflation expectations are drifting downward.

“We are at a crossroads in monetary policy,” said Bullard, who next year will be a voting member on the Fed’s policy-setting committee. With inflation contained and at no risk of breaking out, investors are nervous the Fed has gone too far, he suggested.

Recent market developments and an expected further interest-rate increase means there is a “real risk” the Treasury market yield curve could invert this month, Bullard said. The yield curve is said to invert when interest rates on shorter-term debt rise above rates on longer-term debt, and historically portends a coming recession.

Traders continue to bet on a Fed rate hike in two weeks, when policymakers will next meet and, importantly, release fresh forecasts for the rate path for next year and beyond.

As of just a few months ago, Fed policymakers had indicated they would probably increase interest rates three times in 2019.

But with recent data showing the housing market slowing, job gains cooling, and inflation giving no signs of rising above the Fed’s 2-percent target, there are plenty of “reasons for hinting at a pause in March,” Cornerstone economist Roberto Perli said in a note Friday.

Since the middle of last month, Fed policymakers have pointed to the need to reconsider what have been steady quarterly rate hikes for most of the past two years.

It began with Fed Chair Jerome Powell telling Dallas Fed chief Robert Kaplan in an on-stage interview that policymakers may need to “slow down” amid growing uncertainty, just as someone feeling their way through a dark room filled with furniture would need to do.

Later that month he repeated that metaphor and noted rates are only “just below” a neutral level, a remark that sent markets soaring as traders took

it to mean fewer interest-rate hikes ahead.

Then last week, in minutes of the Fed’s November meeting, policymakers were clear they are preparing to ditch a longstanding promise for “further gradual increases” to the Fed’s policy rate.

Kaplan earlier this week called for “patience” on further rate increases.

Also: WASHINGTON:

Americans

boosted

their borrowing by 7.73% in October from a year ago, the largest increase in nearly a year as consumer spending has helped fuel US economic growth.

The Federal Reserve said Friday that consumer borrowing rose by a seasonally adjusted $25.3 billion in October to a total of $3.96 trillion. The October increase was the most since November 2017 and more than double the gain in the prior month.

Much of the increase was due a 10.75% jump in revolving credit, a

category that includes credit cards. Non-revolving credit - which includes auto loans and student debt rose 6.67%.

Economists and investors monitor consumer borrowing to judge the willingness of people to take on debt to finance their purchases. Higher debt can suggest that people are confident in their ability to repay their loans.

Consumer spending accounts for 70 percent of economic activity. The

economy grew at an annual pace of 3.5 percent in the July-September quarter, aided by the biggest surge in consumer spending in four years. Many Americans have reasons to be confident despite the recent stock market declines. The unemployment rate has held at 3.7 percent, the lowest rate in nearly a halfcentury.

The Fed’s consumer borrowing report does not cover home mortgages or other types of debt secured by real estate such as home equity loans.