Stocks soared Wednesday following remarks by Federal Reserve Chairman Jerome Powell suggesting interest rates would not be going up significantly in the near term.
At a speech to the Economic Club of New York, Powell said, “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.”
Powell’s comments followed Federal Reserve Vice Chairman Richard Clarida’s statement the previous day that interest rates are “much closer” to neutral.
Robert Pavlik, chief investment strategist at SlateStone Wealth, said Powell’s comments were “exactly what the market was expecting to hear,” CNBC reported.
He added: “Obviously it has to do with the market reaction to his previous comments. He had to walk that back.”
In October, Powell had said that interest rates were “a long way from neutral” and that the Fed’s “accommodative” so-called easy money policy used to lift the nation out of the Great Recession was no longer necessary.
“The fed funds rate, which is tied to most forms of consumer debt, currently is in a target range of 2 percent to 2.25 percent,” CNBC reported. “Markets broadly expect another quarter-point hike in December, but there’s been a wide disparity between investors and the Fed on where rates should head in 2019.”
The Fed lowered the rate to zero percent during the Great Recession and injected $3.9 trillion into the money supply starting in November 2008 through October 2014, CNN Money reported.
The Federal Reserve has been drawing those funds out of the money supply and raising interest rates as a means to keep inflation in check.
President Donald Trump has expressed frustration with the Federal Reserve under Powell’s leadership for too aggressively moving to adjust the nation’s monetary policy, fearing it will stymie the strong growth the U.S. economy has witnessed in recent quarters.
In an interview with The Washington Post on Tuesday, the president accused the central bank of pushing the stock market lower through its moves.
“I’m doing deals, and I’m not being accommodated by the Fed,” Trump said. “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.”
He added: “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.”
Besides the Fed’s signal that interest rates may not be going up much further, hopeful signs of new trade negotiations between the U.S. and China put further wind in the stock markets’ sails this week.
Trump told The Wall Street Journal on Monday it was “highly unlikely” that the U.S. would delay increasing tariff levels to 25 percent on $200 billion of Chinese goods.
However, his top economic adviser, Larry Kudlow, played the “good cop” the following day, saying the U.S. had resumed talks with China “at all levels.”
Further, Trump and Chinese President Xi Jinping are slated to meet for dinner on Saturday night during the G20 Summit in Argentina.
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