NY Federal Reserve president claims Central Bank may rethink monetary policy

Responding to tweets Federal Reserve chairman Jerome Powell

The Federal Reserve raised its key interest rate Wednesday for the fourth time this year to reflect the USA economy's continued strength but signalled that it expects to slow its rate hikes next year.

"The market is fearing a global slowdown and is still anxious about the Fed, even though they dragged (New York Federal Reserve President John) Williams out to try to cushion what Chairman (Jerome) Powell said on Wednesday".

"Today we raised our target range for the short-term interest rates by another quarter of a percentage point", Powell told reporters here.

Among other threats: the trade dispute between the US and China, and rising USA interest rates, which act as a brake on economic growth by making it more expensive for businesses and individuals to borrow money.

Adding to the nerves was a chance that the government could be shut down unless President Donald Trump and Congress cut a deal before midnight on their long-running battle over funds for a Mexico border wall.

Throughout Trump's term, the economy has been strong.

In a tweet on Tuesday, Trump said that the Federal Reserve should "take the Victory" of a strong USA dollar while "the outside world is blowing up around us", instead of raising interest rates.

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"Nothing will deter us from doing what we think is the right thing to do", Powell said.

On Wednesday, Fed officials issued an updated set of forecasts that showed that they expect two rate increases in 2019.

It was a remarkable comment coming just two days after the Fed raised the key borrowing rate on Wednesday and signalled it will continue to hike next year, albeit at a slower pace, with only two increases projected. The yield on the 2-year Treasury note fell to 2.62 percent from 2.65 percent.

Yesterday Trump continued his spat with the central bank, criticising the then-expected decision to raise rates on Twitter.

"Williams' calming words just demonstrate that the stock market has an unhealthy addiction to monetary policy", Yardeni said. Setting the interest rate paid on required and excess reserve balances 10 basis points below the top of the target range for the federal funds rate is meant to foster trading in the federal funds market at rates well within the FOMC's target range.

The U.S. economy has given off mixed signals. A global slowdown is already weighing on growth.

Interest rates in the USA, the world's biggest economy, were slashed to almost zero during the financial crisis but have gradually been rising since 2015.

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The steep falls, adding to several weeks of turbulence, represent an unseasonal jolt for markets, which have become accustomed to enjoying a "Santa rally" heading towards the end of the year.

When asked about being challenged by the White House not to increase interest rates, Powell said: "We're going to do our jobs the way we've always done them". But now, the risks of a surprise could rise.

Powell said at a news conference Wednesday that the economy remains "healthy" and "solid" and that he did not see any reason to sharply change the Fed's path of gradually pulling back support for it. This will allow him to explain any abrupt policy shifts. But it also raises the risk that the Fed will jolt the markets by catching them off guard.

"What appeared to be even more concerning to equity investors is that Powell is not only ignoring Trump's calls to pause the tightening cycle, but he is also not listening to them".

Powell did bow to what he called recent "softening" in global growth, tighter financial conditions, and expectations the U.S. economy will slow next year, and said that with inflation expected to remain a touch below the Fed's 2 per cent target next year, policymakers can be "patient". The economy is thought to have grown close to 3 percent this year, its best performance in more than a decade.

The 3.7 percent jobless rate at a 49-year low is arguably the Fed's touchstone achievement of the post-financial crisis era. By 2021, four Fed officials envision reversing course and actually cutting rates to help stimulate the economy.

Because she was managing a series of steady increases from near zero, Yellen could signal forthcoming rate hikes in advance.

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"The really important message is the economy is strong".

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