Fed minutes: Growing risks make rate hike path less clear

Bullard Warns of a U.S. Recession If Fed Keeps Raising RatesMore

Bullard Warns of a U.S. Recession If Fed Keeps Raising RatesMore

The FTSE 100 is on track for its best week in three months after global stocks were lifted by reassurances from the US Federal Reserve that it could be patient about interest rate rises.

However, in an appearance last Friday, Powell struck a somewhat different tone, stressing that with inflation remaining muted, the Fed could afford to be "patient" in determining when to hike rates this year.

"The long-run fiscal, nonsustainability of the US federal government isn't really something that plays into the medium term that is relevant for our policy decisions", Powell continued.

"This drop in the dollar is an overdue correction following a surprisingly robust few weeks despite the massive collapse in United States rate expectations", said Ulrich Leuchtmann, a currency strategist at Commerzbank.

Earlier: Jerome Powell has been moving markets - up and down - lately. Minutes of the December meeting released on Wednesday showed that many officials felt the central bank "could afford to be patient about further policy firming", indicating the Fed could place interest rates on hold through March or longer as it waits for clarity on risks to global growth that could affect the US economy.

The Fed would be "bordering on going too far and possibly tipping the economy into recession" if rates go higher, Bullard said in an interview with The Wall Street Journal.

The more flexible approach, apparent in the minutes and in recent speeches, has supported stock prices.

Several prominent economists and investors have said there's a heightened chance of a recession by 2020.

"The principle worry I would have is really global growth", Powell said, but he added: "I still think the mostly likely baseline case for China is another year of solid growth".

"I don't see a recession", Powell said.

The minutes covered the December 18-19 meeting at which the central bank raised its benchmark rate for the fourth time in 2018, pushing the policy rate to a range of 2.25 percent to 2.5 percent. The unemployment rate stands at 3.9 per cent and central bankers expect it to average 3.5 per cent in the final three months of this year.

The Fed raised rates for a fourth time in 2018 at its December meeting and signaled that it would raise rates another two times in 2019.

Even so, USA central bankers face a challenging year that's complicating their communication.

Various factors that could pose downside risks for domestic economic growth and inflation were mentioned, including the possibilities of a sharper-than-expected slowdown in global economic growth, a more rapid waning of fiscal stimulus, an escalation in trade tensions, a further tightening of financial conditions, or greater-than-anticipated negative effects from the monetary policy tightening to date.

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