Federal Reserve Chairman Jerome Powell said interest rates are “just below” the so-called neutral range, softening previous comments that seemed to suggest a greater distance and spurring speculation central bankers are increasingly open to pausing their series of hikes next year.
Treasuries and stocks rose, as Powell’s “just below” comment tempered remarks he made last month that markets had interpreted to mean that a larger amount of tightening was likely. Speaking at an event on Oct. 3, Powell said that “we may go past neutral. But we’re a long way from neutral at this point, probably.”
In his speech Wednesday to the Economic Club of New York, Powell said the Fed’s benchmark interest rate was “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.”
If rates are closer to what policy makers ultimately judge is the neutral level, that could signal the Fed will tighten monetary policy less than previously projected. Eurodollar futures pricing reacted to Powell’s comments, reflecting even firmer expectations that the Fed will hike only once next year.
Investors are on tenterhooks at the prospect of central bank balance sheet unwinding persisting indefinitely. Therefore, they are highly alert to any sign the Fed’s appetite for additional tightening is waning.Click HERE to subscribe to Fuller Treacy Money Back to top