Federal Reserve Chairman Jerome Powell speaks to the Economic Club of New York on November 28, 2018 in New York. (Xinhua/AFP)
NEW YORK, Nov. 28 (Xinhua) -- U.S. Federal Reserve Chair Jerome Powell said on Wednesday that the central bank's benchmark interest rate is near a neutral level, a modification of what he said two months ago on the same issue.
"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," said Powell during a speech he delivered in front of the Economic Club of New York.
Powell said in early October there was still long way to go before benchmark interest rate hits neutral. His remarks then led to an equity market sell-off as investors feared fast interest rate hike pace would slow down the economy.
Having risen for three times this year, the fed funds rate now stands at the target range of 2 percent to 2.25 percent. Market expectations for a Fed rate hike in December stood at 82.7 percent, according to the CME Group's FedWatch tool. While Fed officials saw three rate hikes next year, market just have one hike priced in.
Powell said Fed's gradual pace of raising interest rates has been an exercise in balancing risks.
"We know that moving too fast would risk shortening the expansion. We also know that moving too slowly - keeping interest rates too low for too long - could risk other distortions in the form of higher inflation or destabilizing financial imbalances," he said.
He added that the economic effects of gradual rate increases are uncertain, and may "take a year or more to be fully realized."
"While FOMC (Federal Open Market Committee) participants' projections are based on our best assessments of the outlook, there is no preset policy path," said Powell.
Talking about the economic outlook, Powell said the Federal Open Market Committee is forecasting continued solid growth, low unemployment, and inflation near 2 percent.
On stocks market, he said equity market prices are broadly consistent with historical benchmarks such as forward price-to-earnings ratios.
"It is important to distinguish between market volatility and events that threaten financial stability. Large, sustained declines in equity prices can put downward pressure on spending and confidence. From the financial stability perspective, however, today we do not see dangerous excesses in the stock market," Powell said.
U.S. stocks soared on Powell's speech, with all three major indices gaining more than 2 percent.
