Published: Mon, December 03, 2018
Markets | By Jeffery Armstrong

The market now loves Jay Powell

The market now loves Jay Powell

The "just below" language stands in contrast to Powell's October comments that interest rates were a "long way" from neutral, a remark some had blamed for triggering the sell-off in stocks that have shaken investors over the last two months.

Stay tuned until February, the next time the report will be released.

On the economic front, USA real gross domestic product (GDP) increased at an annual rate of 3.5 percent in the third quarter, down from a 4.2 percent increase in the second quarter, according to a report released by the Commerce Department on Wednesday.

Tucked in his speech, Powell said that rates are "just below" the so-called neutral range, the level that central bankers believe will neither accelerate nor slow economic growth - a subtle two-word shift from comments he made in October suggesting that interest rates are still "a long way" from neutral. Powell said he and other policy makers continue to see a "solid" outlook for the USA economy, while noting that interest rates are "just below" the so-called neutral range.

Most of the money from the tax cuts has been devoted to finance share buybacks, further boosting the wealth of the financial oligarchy, not to undertake expansion in the real economy.

Powell has tried to delicately explain how the Fed is weighing future policy moves by using the analogy of walking into a pitch-black room filled with furniture.

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Traditionally, stock markets love lower interest rates. Still, "this dovish Fed lean is a fantastic cure-all for what ails stock markets sentiment".

"Over the past year, firms with high leverage and interest burdens have been increasing their debt loads the most", Mr. Powell said.

Investors expect more clues on the Fed's monetary tightening path from the minutes of the USA central bank's November 7-8 meeting, due later on Thursday.

But markets were focused less on such subtleties than on what Powell's assessment of where rates are means for the future path of rate hikes.

Eventually, the FOMC determined that a December interest rate hike was appropriate.

Trump on Tuesday again blasted his hand-picked chief of the U.S. central bank, saying he was "not even a little bit happy" with his selection of Powell.

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"Even if central bank policies are fully anticipated by the public, some adjustments could occur abruptly, contributing to volatility in domestic and global financial markets and strains in institutions", according to the Fed report.

"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", the president added. The minutes said that Fed contracts in agriculture said that conditions "remain depressed", reflecting in part the drop in exports due to the trade battle. Why should he? The data for the USA economy remains strong.

The Fed chairman said the central bank is monitoring potential vulnerabilities in the banking system to ensure its continued stability.

"What do you do?" said Powell in NY.

Cheslock added that some of Powell's remarks about the market not being in a bubble were reassuring as well.

ANALYST'S COMMENT: The mix of Powell's and Lighthizer's comments indicate "it's far too early to suggest that a Santa Claus rally is in the cards", said Stephen Innes of currency trader OANDA in a report.

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