In what was seen as a shift in tone from remarks last month, Powell said Wednesday that the Fed's series of rate increases had brought policy to "just below" the range of estimates of neutral, where it neither spurs nor restricts the economy. "From a financial stability perspective; however, today we do not see unsafe excesses in the stock market".
Powell remains upbeat on the economy, forecasting continued solid growth, low unemployment and inflation near the Fed's 2 percent target.
The Fed has settled into a quarterly rate-hike cycle and is expected to tighten policy again next month.
"He's now acknowledging he's close to neutral, which suggests maybe not quite as many rate hikes in the future as investors believed".
It suggests he may be more cautious than others on the Fed's Open Market Committee about raising the policy interest rate band over the next few years.
"Powell's speech will be the highlight for markets today, and if he chooses to strike a dovish stance, that may signal more headwinds for the dollar", said Morten Helt, a currency strategist at Danske Bank, referring to Fed Chairman Jerome Powell.
The CME Group's FedWatch Tool, an algorithm that calculates the probability of a rate hike in a given month, is now showing an 82.7% chance the Federal Reserve will institute a fourth rate hike for December.
Some policymakers agreed with the idea of further rate increases, but also "expressed uncertainty about the timing". His comments sparked a surge in a stock market that had struggled of late and came in the wake of repeated criticism of the Fed's rate increases by President Donald Trump.
"I'm doing deals and I'm not being accommodated by the Fed", Trump told the Post.
The Fed began a slow and steady interest-rate hiking cycle in December 2015, well before Trump took office, because of the relative strength of the USA economy.
Daco said Powell's comments - coupled with comments from Fed vice chair Richard Clarida on Tuesday - show a "growing desire by the Fed to move the landing zone for the federal funds rate, and signal less cumulative tightening ahead". 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.
The need for "further gradual rate increases" as appropriate to keep the current recovery on track has been a staple of recent Fed policy statements as the central bank nudged rates back toward more normal levels after a decade near zero.
Trump directly criticized Powell, whom he appointed as Fed chairman.
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 Trump.
Speaking to the Economic Club of NY, the Fed Chairman also suggested that while some corporate debt loads have reached riskier levels, "we do not see unsafe excesses in the stock market".
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