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Federal Reserve Chairman Jerome Powell made a statement today saying that the benchmark interest rate laid out by the central bank is near a neutral level, perhaps indicating that the central bank will moderate rate hikes accordingly. Two months ago Powell said that the interest rate was a long way from neutral, and the change in outlook from the Fed may spell good news for the declining US housing market.

Key Takeaways

• Despite mortgage interest rates recently reaching an 8-year high, Powell says that the overall benchmark rate of interest is low by historical standards and just below neutral.
• Powell’s comments on rates in October contributed to a volatile period in the stock market with major averages seeing a brief 10% drop amid concerns over impending rate hikes.
• The feds fund range is in a target range of 2% - 2.25%.
• Further hikes are expected in 2019 and Q4 of 2018.

Powell’s comments were directly followed by a sharp uptick in the stock market, likely due to the restored confidence felt after months of uncertainty and diminished affordability in areas like housing. Government bonds dropped accordingly.

WOW! Stock Market Skyrockets as Fed Chair Jerome Powell suggests pause in his over zealous rate hikes pic.twitter.com/VyFXTxEqBk

— Jim Hoft (@gatewaypundit) November 28, 2018

Most of consumer debt is tied to the fed funds rate which is in the target 2% - 2.25% range, but while the Fed has projected three rate hikes scheduled for 2019, the market has predicted only one, and the difference between both projections are vast with many concerned that three rate hikes could significantly impact or reverse the recent economic expansion seen in the US.

In Powell’s speech he also stated that the Federal Open Market Committee does not have a set plan for rate hikes at this time.

Powell’s Speech

Speaking at 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," Powell told The Economic Club of New York in a speech being closely watched in what has become a volatile financial marketplace.

"While FOMC participants' projections are based on our best assessments of the outlook, there is no preset policy path," he said. "We will be paying very close attention to what incoming economic and financial data are telling us. As always, our decisions on monetary policy will be designed to keep the economy on track in light of the changing outlook for jobs and inflation."

He also remarked that rates often take “a year or more” to impact the economy, demonstrating that patience was required in measuring the effects as well as pointing out that forward planning is essential in creating monetary policy.

Market Response

The stock market saw a strong upward trend with a 550 point increase in the Dow and a 1.8% and 2.4% increase in the S&P 500 and the NASDAQ respectively. Gold prices held on to gains seen earlier in the day but saw little change following the speech with spot gold trading at $1,221/oz and up 0.56% and December Comex Futures trading at $1,221.6/oz and up 0.68% on the day.