The Federal Reserve on Thursday paved the way for a fourth rate hike in December, but sent a clear signal that it would be flexible on plans to raise rates in 2019.
Minutes of the US central bank's November 7-8 meeting showed "almost all participants" agreed that another rate hike would likely be necessary "fairly soon."
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But Fed officials also raised the prospect they could slow plans to raise rates next year, and discussed how to signal to investors that they would stay flexible "in responding to changing economic circumstances."
Thursday's minutes reinforce a message sent by Federal Reserve Chairman Jerome Powell as yet another signal the Fed may pause rate hikes next year. His speech to the Economic Club of New York sent markets soaring more than 600 points on Wednesday.
Tucked in his speech, Powell said that rates are "just below" the so-called neutral range, the level that central bankers believe will neither accelerate nor slow economic growth -- a subtle two-word shift from comments he made in October suggesting that interest rates are still "a long way" from neutral.
The change comes months after Powell indicated plans to raise interest rates and cool down the US economy, moves that run counter to President Donald Trump's expansionary moves, including last year's tax cuts.
Trump has repeatedly attacked Powell over rate increases, calling the investment banker he selected last year to oversee the world's most powerful central bank a "threat."
Nearly all economists anticipate the Fed will raise rates at the upcoming meeting in December, and the Fed has penciled in three rate hikes in 2019 -- though it remains to be seen whether Powell will follow through with that plan after his comments this week.
His remarks on Wednesday were a distinct shift in tone from early October, when the Fed chairman suggested the central bank might go "past neutral, but we're a long way from neutral at this point, probably."
"His description highlights the significant uncertainty around estimates of neutral, a theme he mentioned at his speech at Jackson Hole in August," Jan Hatzius, chief US economist for Goldman Sachs, wrote in a note to clients Wednesday.
During the Fed's November meeting, participants discussed a number of risks that could sweep away their rosy economic outlooks and change the path of policy, including "high levels of uncertainty" over the impact fiscal and trade policies on growth and inflation.
Some members noted the further appreciation of the US greenback could also pose as a downside risk to the economy. While the potential for an escalation in tit-for-tat tariffs with China could "slow economic growth more than expected," others noted.
A few participants also expressed reservations about the timing of the next rate hike, suggesting that the benchmark rate -- which determines the cost of borrowing on credit cards, mortgages and other loans -- may currently "be near its neutral level" and "further increases" could slow down the economy's expansion.
Powell in his remarks Wednesday also raised the importance of policymakers staying flexible in charting a path of policy given that the effects of rate hikes show up with a lag -- a point that was reinforced in the Fed's November minutes.
"We also know that the economic effect of our gradual rate increases are uncertain, and may take a year or more to be fully realized," Powell said in New York.
Analysts read that as a suggestion that Powell intends to be more cautious about hikes in rates.
"Powell took pains to state that the FOMC's rate projections are based on their best assessments of the economic outlook," Kevin Logan, chief US economist for HSBC wrote in a Wednesday note to clients, referring to the policy-setting Federal Open Market Committee. "This sounds like a more flexible approach to policy for 2019 than the impression created by the notion that the Fed has decided to lift the federal funds rate to neutral and that neutral was 3% or higher."
The US central bank chairman has repeatedly tried to advise investors not to read too deeply into the Fed's economic forecasts, saying policymakers often don't have the ability to see that far into the future and decisions are formed based on incoming data from markets, the economy and business contacts.
"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. "We have to be thinking about how much further to raise rates and the pace at which we will raise rates."
One additional twist investors will need to adjust to next year will be the potential for rate changes at any of the Fed's monthly gatherings. To date, markets have considered quarter-end meetings in March, June, September and December as "live" meetings that result in rate changes.
"I do think over time folks will have to get used to the idea that we can and will move at any meeting," said Powell in a question-and-answer session in Dallas. "Certainly, all meetings are live now. There's no question about that."
Powell has tried to delicately explain how the Fed is weighing future policy moves by using the analogy of walking into a pitch-black room filled with furniture.
"What do you do?" said Powell in New York. "You slow down. You maybe go a little less quickly. You feel your way. Under uncertainty of this kind, you be careful. I think that's what we've been doing."
The Fed has been trying to strike a balance between not moving too fast and risking shortening the economy's longest running expansion versus not moving too slowly and risking the economy overheating.
After the financial crisis erupted in 2008, the Fed kept rates at historically low levels to revive the ailing economy. It slowly began to raise them again in 2015 as the economy regained strength under Obama, and it has raised rates six times since Trump took office. Three of those increases have been under Powell.
In November, Fed policymakers agreed to hold rates steady, leaving the benchmark rate unchanged in a range of 2% and 2.5%.
The continued strength of the American economy has made it more likely that the Fed will stick to its plans to raise rates in December, as part of its strategy to keep growth on an even keel into 2019.
"There is a great deal to like about this outlook," said Powell on Wednesday.