Breaking News
Investing Pro 0
Free Webinar - Crude Oil Trading 2023 | Thursday, February 9, 2023 | 01:00PM PST Enroll Now

Fed Emphasizes Flexible Policy Path After Likely December Hike

Economy Nov 29, 2018 03:20PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. Fed Emphasizes Flexible Policy Path After Likely December Hike
 
US500
-1.11%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

(Bloomberg) -- Federal Reserve officials signaled they’re adopting a more flexible approach in their gradual interest-rate increases after a likely December hike, as they try to sustain a U.S. expansion that may become the longest on record next year.

“Almost all participants expressed the view that another increase in the target range for the federal funds rate was likely to be warranted fairly soon,’’ assuming the economy performs in line or stronger than their expectations, the central bank said in the minutes of its Nov. 7-8 session released in Washington Thursday.

Officials also said that their post-meeting statement may need to be modified at coming meetings, “particularly the language referring to the committee’s expectations for ‘further gradual increases,”’ the minutes said.

The minutes reinforce comments by Chairman Jerome Powell on Wednesday that suggested central bankers are getting close to an estimated range of interest rates that neither speed up nor slow down growth and are now adopting a flexible approach to their policy path. Those remarks sparked a rally in stock and bond markets, while sending the dollar lower.

Equities erased earlier declines after the minutes of the Federal Open Market Committee gathering were released, while the yield on the 10-year Treasury note was around 3.03 percent, holding its decline from earlier. The S&P 500 Index advanced for a fourth straight day, trading 0.4 percent higher at 3:04 p.m. New York time.

At the meeting this month, U.S. central bankers left the benchmark lending rate in a range of 2 percent to 2.25 percent. Fed officials next meet Dec. 18-19, and futures traders are pricing in a more than 70 percent probability of another quarter-point increase in the range for the key short-term rate, which would be the fourth hike of 2018.

A December increase would bring the policy rate close to the bottom of the 2.5 percent to 3.5 percent range policy makers estimated as neutral. At the same time, Fed officials are emphasizing they are becoming increasingly reliant on indicators and data to tell them that they are getting close to neutral.

“Many participants indicated that it might be appropriate at some upcoming meetings to begin to transition to statement language that placed greater emphasis on the evaluation of incoming data in assessing the economic and policy outlook,” the minutes said. “Such a change would help to convey the committee’s flexible approach.”

While Fed officials expected solid growth to continue before slowing to a pace closer to its trend over the medium term, they still saw some risks. The buildup of corporate debt amid weakening lending standards caught the attention of the committee.

“Several participants were concerned that the high level of debt in the nonfinancial business sector, and especially the high level of leveraged loans, made the economy more vulnerable to a sharp pullback in credit availability,” the minutes said.

Fed Strategy

The minutes also contained a lengthy discussion of the Fed’s operating strategy and how that links to banks’ preference to hold abundant excess reserves after the financial crisis.

Following a staff presentation which included a survey of senior financial officers, Fed officials appeared to side in favor of an operating regime that would provide abundant reserves to banks through a large Fed balance sheet, meaning that the central bank’s portfolio is unlikely to return to its pre-crisis stance.

“Based on experience over recent years, such a regime was seen as providing good control of short-term money market rates in a variety of market conditions,” the minutes said. “By contrast, interest rate control might be difficult to achieve in an operating regime of limited excess reserves.”

The minutes flagged the possibility that the Fed will make another adjustment to maintain control of the policy rate, by adjusting the separate interest rate on excess reserves, or IOER, which is currently set at 5 basis points below the upper bound of the federal funds target range.

Powell was cited in the minutes as saying that “it might be appropriate to implement another technical adjustment in the IOER rate relative to the top of the target range for the federal funds rate fairly soon.” Fed officials agreed that it would be “appropriate” to take action before the December meeting if necessary to keep the federal funds rate “well within” the Fed’s target range, according to the minutes.

(Recasts first paragraph, adds markets in fifth.)

Fed Emphasizes Flexible Policy Path After Likely December Hike
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.
  • Any comment you publish, together with your investing.com profile, will be public on investing.com and may be indexed and available through third party search engines, such as Google.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email