December 3, 2018 — Fed Chair Hints Rate Increases are Topping Out


Fed Chair Jerome Powell spoke at the Economic Club of New York last week.  Stocks surged after he said the central bank may be closer to ending its push to increase interest rates.

Powell said the Fed’s benchmark rate was “just below” the neutral level, a change from his wording in October, when he said rates were a “long way” from neutral, causing investors to believe rate increases would stifle the economy.  The new wording implies the Fed may stop raising rates or raise more slowly.  A neutral range of rates is 2.5% to 3.5% as submitted by the Fed at their September meeting.  Currently rates stand at 2% to 2.25%.  After the December hike, rates should rise into the 2.25% -2.5% range touching the bottom of ‘neutral’.

The next FOMC meeting is set for December 18-19. Powell said nothing to suggest they’ll be able to stop at the bottom of the range after just one more hike, but he removed concerns the Fed is dead set on tightening up to a point where rates would intentionally slow down the economy.

Bloomberg Economics anticipates a rise in interest rates in December, followed by three fed hikes in 2019, then an extended pause.  Interest rate swaps continue to be an attractive way to lock in today’s rates before the anticipated rate hikes cost you more money.