Published: Fri, November 30, 2018
Markets | By Erika Turner

Wall Street surges on hints of fewer rate hikes, dollar falls

Wall Street surges on hints of fewer rate hikes, dollar falls

The Federal Reserve chairman has presided over three interest rate increases this year and is widely expected to hike again in December.

The broad-based S&P 500 climbed 61.61 points (2.30 per cent) to close at 2,743.78, while the tech-rich Nasdaq Composite Index surged 208.89 points (2.95 per cent) to 7,291.59. Unemployment is at a 48-year low, and inflation is right at the Fed's 2 percent target.

Besides flagging an escalation of trade tensions as a near-term risk, the Fed also listed as potential flash points the U.K.'s coming withdrawal from the European Union, Italy's budget dispute with the EU and high debt levels in some emerging-market economies.

"Our gradual pace of raising interest rates has been an exercise in balancing risks, " Powell said. Low interest rates were deemed necessary to help the economy recover, but many economists have agreed that as things improve, interest rates need to rise to avoid inflation.

Mr Trump blames the Fed's recent rate rises for recent stock market declines and has described future rate increases as the biggest risk to the United States economy.

U.S. central bankers are trying to keep the world's largest economy on an even keel and inflation near their 2 per cent target amid a strong labour market that has driven unemployment to the lowest level since 1969.

He addressed the Economic Club of NY in his first major presentation since he indicated last month the Fed is planning on more interest rate increases. In an interview Tuesday with the Washington Post, the president complained bluntly and at length about Powell, who was Trump's hand-picked choice to lead the Fed.

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It's not the first time the President has criticized the central bank, but it's the latest and strongest in what has been a week of escalating attacks against it. Mr. Trump's own measure of the success of his presidency hinges on maximizing economic growth and stock-market returns. I'm not going to say it's so much Trump ー that Trump has been sending mean tweets about Chairman Powell.

That shift was reflected in money markets where expectations of Fed rate increases declined to around 47 basis points over the next year from 52 basis points earlier this week.

Powell's comments and similar remarks from other Fed officials have raised hopes in financial markets that the central bank may be close to slowing its rate increases, which have gradually raised borrowing costs for consumers and businesses. The goal of higher interest rates is to slow the economy and prevent inflation.

"Notice I said the stock markets".

"There's a definite case to be made to experiment with running the economy as hot as we can as long as we can", Bivens said. Investors had been anxious that too many rate hikes at too fast a pace would raise the cost of borrowing across the board, from mortgages to vehicle loans.

For his part, Bianco also said anxiety aside, old sources of risk ー like the banking system, the credit markets, the mortgage markets, or too much leverage ー won't cause the next financial crisis.

Mr Powell said the overall risks to financial stability remain "moderate", but he flagged rising levels of corporate debt as one area of concern.

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