Fed's Powel says US interest rates are 'near neutral'

Fed Some US businesses' debt at highest level in 2 decades

Jerome Powell said that the central bank's base interest rate was "just below" estimates of a "neutral" level - one that would neither stimulate nor cool the economy - and that officials were flexible about where it should be, despite forecasting several increases in the coming year.

The federal funds rate is now between two percent and 2.25 percent.

In a speech to the Economic Club of NY on Wednesday, Federal Reserve Chairman Jerome Powell said interest rates are just below the range of estimates that would be "neutral" for the economy.

Since his previous comments, that additional interest rates increases could be expected, stocks indices have fallen sharply, credit markets have shown indications of stress and investors are holding back, expecting the Fed to slow its interest rate increase.

Powell also acknowledged that "the economic effects of our gradual rate increases are uncertain, and may take a year or more to be fully realised", adding to speculation as to whether the Fed will deliver three rate increases next year as the median FOMC forecast suggested in September.

While markets still expect a rate hike in December, Mr Powell said, "there is no preset policy path".

Powell's speech was focused largely on a new Fed report on stability of the U.S. financial system, but contained an unusual comment: "By clearly and transparently explaining our policies, we aim to strengthen the foundation of democratic legitimacy that enables the Fed to serve the needs of the American public". Bond yields slipped and the dollar weakened as investors adjusted their expectations for how quickly interest rates might rise in the future. That gave Carter an opening to make Paul Volcker the Fed chairman, someone the Carter administration regarded as better equipped to combat high inflation.

Mr Powell, who was speaking at the Economic Club in NY, did not address the criticism directly.

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USA equity markets opened higher and their gains accelerated after Powell spoke.

The minutes of the Fed's November monetary policy meeting will also be released at 6am AEDT, providing another event that could spark volatility in financial markets. "If it sells off enough, the Fed will blink", Bianco told Cheddar Wednesday. "That being said, given the headwinds out there I can't see it being sustained", said Gary Waite, portfolio manager at Walker Crips in London.

To date, Trump has indulged only in rhetoric, but there is a question of whether he might try to do more.

"I'm doing deals, and I'm not being accommodated by the Fed", Trump told The Washington Post this week.

"I'm not happy with the Fed. Not even a little bit", the President said of the man he hand-picked for the job a year ago.

Asked about GM's layoffs and recent declines on Wall Street, Trump laid the blame on Powell. Of course, President Donald Trump also has vociferously criticized the Fed's interest-rate hikes and their impact.

The report is the first of what the Fed intends as a twice yearly review of risks to financial stability, defined as the degree to which the financial system can continue to lend to businesses and households even when subjected to an outside shock.

In his speech, Powell also explained the Fed's inaugural report on the stability of the United States financial system, released earlier Wednesday.

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