NEW YORK–Federal Reserve Chairman Jay Powell tempered his position on rate hikes during a speech here, leading the Dow to subsequently jump some 450 points.
Powell’s comments came just after the release by the Fed of a new report in which it said investors are showing a high tolerance for risk and expressed concerns the debt held by businesses is “historically high, and there are signs of deteriorating credit standards.”
Speaking to the Economic Club of New York, Powell said, “Interest rates are still low by historical standards, and they remain 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.”
Just two months ago Powell had said the Fed was a “long way” from being neutral, which set off increased market volatility as investors and Wall Street became concerned the fed would move quickly to raise rates.
But in his remarks in New York, Powell took a slightly softer tone, saying rates are “just below” neutral.
The Fed has steadily raised rates this year to the current effective Fed funds rate of between 2.0% and 2.2%.
‘No Dangerous Excesses’
“It is important to distinguish between market volatility and events that threaten financial stability,” said Powell. “Large, sustained declines in equity prices can put downward pressure on spending and confidence. From the financial stability perspective, however, today we do not see dangerous excesses in the stock market.”
Powell’s remarks came just one day after President Trump told the Washington Post he has been displeased with the Fed’s moves to raise rates, saying, “So far, I’m not even a little bit happy with my selection of Jay. Not even a little bit. 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.”
Report Expresses Some Concerns
Powell’s remarks followed the release of a financial stability report by the Fed in which it said it sees as valuations in financial markets that are “generally elevated” and show investors exhibiting a “high tolerance for risk-taking, particularly with respect to assets linked to business debt.”
The report adds that, “debt owed by businesses relative to gross domestic product (GDP) is historically high, and there are signs of deteriorating credit standards.”