According Reuters, nearly all Federal Reserve officials at their last meeting agreed another interest rate increase was "likely to be warranted fairly soon", but also opened debate on when to pause further hikes and how to relay those plans to the public.
Until now, strong economic data and new fiscal stimulus made the central bank more determined to gradually lift rates to neutral because the economy is expanding solidly and unemployment continues to fall. This should be clarified at the next meeting on December 18-19.
Karim Basta, chief economist at III Capital Management, said recent market volatility showed toning down the neutral rate debate was the way forward.
But, wait: Didn't the head of the Fed just give investors optimism that it was nearing its comfort zone for the cost of cash - its so-called neutral rate?
Powell's 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. It was 2.95 percent earlier this month, suggesting investors have scratched off a full rate hike from their forecasts of Fed policy. Officials largely think interest rates are still so low that they are encouraging borrowing, investing and spending-boosting overall economic growth.
Some members noted the further appreciation of the U.S. greenback could also pose as a downside risk to the economy. Stocks swooned on those remarks as investors bet the US central bank would need more rate hikes to prevent the economy from overheating.More news: Major change ahead with Storm Diana brewing in Atlantic
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Market participants interpreted that as a dovish signal for future rate hikes, compared with Powell's previous remarks in early October that rates were "a long way" from neutral, a level neither stimulative nor restrictive to the economy. That suggested to many investors that fewer rate increases might be on the way.
"If you look down the road, you see challenges ahead, and they're challenges that are typical in a cycle", said Powell speaking earlier this month at the Federal Reserve Bank of Dallas. After mid-year, Ashworth said he expects that "a slowdown in economic growth to below potential forces (the Fed) to the side lines".
"Interest rates are still low, by historical standards, and they remain just below the range of estimates of that level, that would be neutral for the economy", said Powell. And Powell's own communications plans to end each meeting with a news conference starting next year mean he needs a clear message for each meeting, starting next month. The current system relies on the Fed paying interest on some reserves to set the federal funds rate.
The dollar, which has outperformed bonds and the benchmark S&P 500 stock index this year amid rising interest rates and safe-haven flows triggered by global trade tensions, was modestly higher.
The minutes of the Fed's November 7-8 meeting showed that officials expressed concerns about a variety of threats, including the impact of tariffs, a slowing global economy and tightening financial conditions amid falling stock prices. Bloomberg Economics anticipates three increases.
The Fed is expected to increase rates again in December and has estimated three more increases might be necessary next year. "There is a great deal to like about this outlook, " he said in a speech to the Economic Club of NY.