US Fed says another rate hike "likely to be warranted fairly soon"

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USA central bankers believe another interest rate hike is due "fairly soon", boosting widespread expectations the Federal Reserve will raise lending costs next month, according to meeting minutes released Thursday.

"Powell took pains to state that the FOMC's rate projections are based on their best assessments of the economic outlook", Kevin Logan, chief USA economist for HSBC wrote in a Wednesday note to clients, referring to the policy-setting Federal Open Market Committee.

"Westpac is forecasting rates will rise in December, and this will be followed by 3 further rate hikes in 2019".

He said then that growth overseas was likely to weaken and that United States fiscal stimulus, which had goosed consumption, would soon fade.

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In an interview with the Washington Post earlier this week, Trump blamed the Fed for recent stock market declines and General Motors's announcement of plant closures and layoffs.

The Fed members' comments initially appeared to comfort investors.

During the Fed's November meeting, participants discussed a number of risks that could sweep away their rosy economic outlooks and change the path of policy, including "high levels of uncertainty" over the impact fiscal and trade policies on growth and inflation.

It was a "rookie mistake, " Omair Sharif, senior US economist at Societe Generale, said Wednesday in a note to clients. This gap, which measures expectations on rate increases in the next year, has narrowed to 23 basis points, indicating that traders are not penciling in more than one increase in 2019, although the Fed's median projections still point to three increases next year. Since a September news conference when he painted a rosy picture of where things stood, some economic indicators have softened; others, such as wage growth, have firmed, leaving the Fed for the first time in a long time pulled in different directions. However, it did signal a potential shift in tone about the pace of future rate hikes. From the Fed's perspective, the interest rate hike in December will probably lead to an interest rate level that will no longer justify the automatism of a quarterly interest rate hike. His emphasis on Wednesday suggested greater flexibility to stop sooner or move more slowly.

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

Powell said that "there is no preset policy path" for future rate hikes and the current level for the Fed's benchmark rate was very close to "neutral", the point where the Fed is neither stimulating economic growth or slowing growth. "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". He kept up his criticisms with Powell on Tuesday, saying rising interest rates have hurt the economy. Three of those increases have been under Powell.

The minutes of the November meeting showed Federal Open Market Committee policymakers had on their agenda a series of issues, ranging from a tightening of financial conditions, global economic risks, "and some signs of slowing in interest-sensitive sectors", that had begun to sway their assessment of the economy.

On Wednesday, Jerome Powell offered few explicit clues on how many hikes will be necessary in 2019, but repeated his view the Fed will have to be especially responsive to the data. "It's ironic that a concept, the neutral rate, in which the Fed has such little confidence, has swung markets so dramatically in the past two months", Basta said.

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