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US Fed’s chief in apparent dovish shift, says rates near neutral

This article is more than 12 months old

US Federal Reserve Chair Jerome Powell injected investors with a strong dose of optimism on Wednesday, saying that the central bank's policy rate is now"just below" estimates of a level that neither brakes nor boosts a healthy US economy, comments that many investors read as signaling the Fed's three-year tightening cycle is drawing to a close.

Stocks and interest-rate futures jumped, even while economists wrestled to interpret whether Mr Powell intended to send a message or was simply misunderstood.

On their face, the comments were a reversal from early last month, when Mr Powell said the key interest rate was probably still a "long way" from a so-called neutral level and that the Fed might even tighten policy beyond that level.

Stocks swooned on those remarks as investors bet the US central bank would need more rate hikes to prevent the economy from overheating.

The possibly dovish shift in language on Wednesday came as President Donald Trump stepped up attacks on Mr Powell, criticising the Fed's rate hikes as undercutting his economic and trade policies.

Mr Trump told the Washington Post on Tuesday that he is "not even a little bit happy" with the Fed chief.

Mr Powell "gave the market, and presumably President Trump, exactly what he wanted, which was an admission that the previously proposed path of future rate hikes was probably too aggressive and opening to slowing the rate of hikes," said Mr Oliver Pursche, vice-chairman and chief market strategist at Bruderman Asset Management in New York.

The Fed has settled into a quarterly rate-hike cycle and is still expected to raise rates again next month.- REUTERS

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