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Rand adds to gains after cheering dovish US Fed

30 Novembre 2018

The small-cap Russell 2000 index rose by 2.41 percent. UnitedHealth Group rose 2.6 percent.

U.S. stocks pared losses after a tumultuous morning session focused on trade and interest rates. Home sales, vehicle sales, business investment and other parts of the economy that are sensitive to interest rates have begun to soften, evidence that the Fed's eight rate increases since 2015 are changing household and business behavior.

Trump in recent weeks has repeatedly attacked the Fed - and Powell personally - for the central bank's interest rate increases, which the president has blamed for stock market turmoil and signs of economic weakness.

While campaigning for president in 2016, Trump had been critical of the Yellen Fed, contending that under her, the central bank was keeping rates abnormally low to try to help Democrats.

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.

Almost two months ago, Powell had said that rates were far from neutral. "It's so tight. I think the Fed has gone insane", Trump told reporters in Erie, Pennsylvania, where he had come for a campaign rally earlier this month.

"So far, I'm not even a little bit happy with my selection of Jay", Mr Trump told the Post on Tuesday, using Mr Powell's nickname.

There's no evidence that Trump's tweets have influenced the Fed, and nobody at the Economic Club's genteel luncheon had the temerity to ask Powell about that (at least during any of the video presentation I saw).

"Clearly, Powell's comments about where the neutral interest rate is has created a shift in market expectations with respect to Fed policy", said Jane Foley, a senior currency strategist at Rabobank in London.

The speech was focused on stability in the financial system, and Powell cited four potential vulnerabilities for the economy, including excessive leverage and debt loads in some sectors.

He said of Mr Greenspan, who had originally been appointed by Ronald Reagan in 1987: "I reappointed him and he disappointed me".

For Wall Street, Wednesday's report could provide clues into the Fed's thinking on when it might use an obscure but powerful tool: the so-called counter-cyclical capital buffer, a mechanism that many countries have established to increase capital demands at big banks when a robust economy starts to show strain. But what's more likely is that the Fed will irritate the President further before it's done.

"There's a definite case to be made to experiment with running the economy as hot as we can as long as we can", Bivens said. Those increases have raised its benchmark rate to a still-historically-low range of 2 per cent to 2.25 per cent.

He also explained the Fed's inaugural report on the stability of the United States financial system, released earlier Wednesday, noting that the central bank did not see "dangerous excesses" in stock markets.

Mr Powell said the overall risks to financial stability remain "moderate", but he flagged rising levels of corporate debt as one area of concern.

Rand adds to gains after cheering dovish US Fed