Stocks rise after embattled Fed chair tempers talk of interest rate hikes

November 28, 2018

Stocks rose sharply Wednesday after Federal Reserve Chairman Jerome Powell, who’s under fire from President Trump, suggested in a speech that the Fed might slow the rise in interest rates.

At the Economic Club in New York City, Mr. Powell said interest rates are “still low by historical standards” and “would be neutral for the economy that is, neither speeding up nor slowing down growth.”

“There is no preset policy path,” he said of interest rate hikes.

The Dow Jones Industrial average climbed about 520 points, or more than 2 percent, by early afternoon. The SP 500 rose 1.8 percent, and the tech-heavy NASDAQ climbed 2.27 percent.

But Mr. Powell also said the stock market’s recent selloff doesn’t pose big risks to the U.S. financial system, a comment that many analysts took as a signal the central bank won’t abandon its push to raise interest rates.

“It is important to distinguish between market volatility and events that threaten financial stability,” Mr. Powell said. “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.”

Mr. Trump has criticized the Fed and Mr. Powell for slowing the momentum of economic growth by raising interest rates. He told The Washington Post Tuesday that he wasn’t “even a little bit happy with my selection” of Mr. Powell to head the Fed/

The markets also could be responding to comments from White House officials that Mr. Trump is open to resolving his trade dispute with Chinese President Xi Jinping when the two leaders meet at the G-20 summit in Argentina this weekend.

Mr. Trump has argued that the Fed’s policies were damaging the economy and pointed to the recent stock market declines and General Motors’ announcement Monday that it would cut up to 14,000 workers in North America and put five plants up for possible closure.

Higher interest rates tend to slow economic growth over time as well as pressure stock prices. For those reasons, this year’s hikes have made the Fed the target of unusual public attacks from Mr. Trump criticism that has accelerated with the past month’s sharp declines in the stock market.

Mr. Trump has complained that the Fed is threatening to undo the economic stimulus being provided by the tax cuts and that its rate hikes are unnecessary because inflation has remained relatively low.

In its most recent projections, the Fed forecast that it would raise rates in December for the fourth time this year, followed by three more hikes in 2019.

Analysts think a rate hike next month is all but certain, possibly in part because they think the Fed doesn’t want to appear to be bowing to pressure from Mr. Trump. But some economists say three rate increases for next year are beginning to look less certain.

This story is based in part on wire service reports.

Update hourly