Fed could reassess view on further rate hikes in 2019

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The U.S. Federal Reserve will "be ready to reassess and reevaluate the views" on further rate hikes next year, the president of the Federal Reserve Bank of New York said Friday.

John Williams, a voting member and vice chairman of the policymaking Federal Open Market Committee, told CNBC that the Fed is listening to the message of the market, looking carefully at the data, and talking to business and other leaders in the community around the country in order to get a full picture of the economy.

"Something like two rate increases would make sense in a really strong economy going forward. But we're data-dependent. We're going to adjust our views dependent on how the outlook changes," said Williams, who defended the Fed's latest decision to raise interest rates.

Williams' soothing remarks came after a sharp sell-off following the Fed's Wednesday announcement, in which it raised the U.S. federal funds rate by a quarter of a percentage point, to a range of 2.25 to 2.5 percent. Fed officials also lowered its rate hike projection for next year from three to two.

In the wake of the Fed announcement, U.S. stocks declined sharply on Wednesday, with both the Dow Jones Industrial Average and the S&P's 500 index falling about 1.5 percent. The U.S. stocks extended losses on Thursday and Friday, driven by the Fed's rate hike and the prospect of a partial government shutdown.

U.S. Treasury Secretary Steven Mnuchin / VCG Photo

U.S. Treasury Secretary Steven Mnuchin said Thursday the market's reaction to the Fed's interest-rate hike was "completely overblown."

Tim Duy, a veteran Fed watcher and economics professor at the University of Oregon, wrote in a blog post on Thursday that the Fed delivered "a more hawkish message than Wall Street was hoping for."

"It makes no sense to create the impression of a promise to continue to raise interest rates at a mature point in the business cycle when growth is already slowing," he argued.

The Fed expected the U.S. economy to grow at three percent this year, a bit lower than 3.1 percent estimated in September, according to its latest economic projections released on Wednesday. It also revised down the growth forecast for 2019 from 2.5 percent to 2.3 percent.

When asked how he perceives the market, Fed Chairman Jerome Powell on Wednesday told a press conference that Fed officials would look for material changes in financial conditions as market volatility doesn't necessarily result in major economic impact.

"We follow markets really carefully but remember, from a macroeconomic standpoint, no one market is the single dominant indicator," Powell said.

The Wednesday decision marked the Fed's fourth rate hike this year and the ninth since late 2015, as the U.S. central bank moves forward on the path of monetary policy normalization.

Source(s): Xinhua News Agency