Tag Archives: Federal Reserve

The Federal Reserve is prodding Americans to buy more on credit

FILE PHOTO: A sign advertises homes for sale in a new housing development in Dickinson, North Dakota January 21, 2016. REUTERS/Andrew Cullen

By Jason Lange

WASHINGTON (Reuters) – The Federal Reserve’s decisive statement this week that interest rates are unlikely to rise this year sends a signal to U.S. households: keep buying stuff.

The Fed tries to guide the U.S. economy by controlling the interest rate banks charge one another for overnight loans. Moving this rate up lifts other rates in the economy, making it costlier for people to use their credit cards or to buy homes and cars. Higher rates also make companies rethink investments.

A solid majority of Fed policymakers on Wednesday said higher rates are unlikely this year, leading investors to bet the economy might slowing enough for the Fed to actually cut rates.

The following are some possible consequences for American households:

EASY CREDIT

The Fed’s signal on its interest rate outlook led key market rates to fall, including the yield on 10-year Treasury bonds. That is a sign that rates are also falling for loans used to buy houses and cars. Interest rates for credit cards may also drift lower. Mortgage rates have been falling since November when Fed policymakers made clear they would be patient about rate decisions.

SAVING DISCOURAGED

Lower rates also encourage spending by taking the shine off some common ways to save money. Low yields reduce the return on money in savings accounts as well as in funds made up of safe-haven government bonds. This poses a problem for retirees who depend more on their income from savings and who take a hit from lower rates on Treasury bonds. The Fed has argued that retirees benefit from actions taken to support the broader economy.

RETIREMENT BOOST

Rising stock prices comprise the flip side of lower bond yields. That boosts the value of private retirement accounts, such as 401(k)s, particularly those of young people whose accounts tend to be weighted toward stocks.

The benchmark S&P 500 stock index surged after the Fed’s decision, reflecting the view that cheaper borrowing costs would help company profits. It is possible that stock market gains could boost consumer spending because people sometimes loosen their purse strings after a rise in perceived wealth.

BUOYANT LABOR MARKET

The U.S. jobless rate is near its lowest level in 50 years although lately there have been signs of softening in the labor market. Hiring slowed sharply in February and the number of new jobless claims every week has also been ticking higher. The Fed’s action aims to keep the labor market solid. That could help encourage more people to rekindle job searches they had given up when the economy was still weak following the 2007-09 financial crisis.

 

(Reporting by Jason Lange, editing by G Crosse)

Fed says U.S. economy ended 2018 with solid but weakening growth

FILE PHOTO: Flags fly over the Federal Reserve Headquarters on a windy day in Washington, U.S., May 26, 2017. REUTERS/Kevin Lamarque/File Photo/File Photo

By Howard Schneider and Pete Schroeder

WASHINGTON, Feb 22 (Reuters) – The U.S. economy maintained “solid” growth through the second half of 2018, likely expanding “just under” 3 percent for the year, though consumer and business spending had begun to weaken, the Federal Reserve said on Friday in its semi-annual monetary policy report to Congress.

In a document that balanced its mostly positive outlook for a still growing economy against an array of emerging domestic and global risks, the U.S. central bank laid out why it had put further interest rate hikes on hold last month.

From a “deteriorated” appetite for risk among investors to a slowdown in China, the outlook for policy is “more uncertain than earlier,” the Fed said, noting “softer global and economic conditions.”

That may spill into the start of 2019, the Fed said, noting that the recent 35-day partial shutdown of the U.S. government “likely held down GDP growth in the first quarter of this year.”

For 2018, the Fed said: “Consumer spending expanded at a strong rate for most of the second half … though spending appears to have weakened toward year-end.”

“Business investment grew as well, though growth seems to have slowed somewhat,” it added.

Consumer and business confidence remains “favorable,” but “some measures have softened since the fall,” the Fed reported. “Domestic financial conditions for businesses and households have become less supportive of economic growth.”

The Fed noted to Congress that it would continue to reduce the size of its balance sheet, which had declined by about $260 billion since its last report to lawmakers, ending the year at close to $4 trillion. But the central bank also repeated its new openness to adjusting “any of the details” of its balance sheet plan if economic and financial conditions warrant.

POWELL HEADS TO CONGRESS

Fed Chairman Jerome Powell will testify before lawmakers in the U.S. Senate and House of Representatives on Tuesday and Wednesday to elaborate on the report in what could prove to be an important week for economic data and the central bank’s sense of where the economy is heading.

The report indicated some underlying economic strength, with “ongoing improvements in the labor market,” and solid growth in disposable income, fueled by the Trump administration’s tax cuts, boosting household consumption.

Inflation last year remained close to the Fed’s 2 percent target.

But the Fed noted headwinds, including those tied to the ongoing debate over global trade policy. Overall, net exports “likely subtracted a little from real GDP growth” over 2018, despite the administration’s efforts to improve the U.S. trade position.

At a policy meeting late last month, Fed officials put their three-year push for higher interest rates on hold amid a broad recognition that inflation and global growth had weakened, and that the U.S. outlook was less certain than just a few weeks earlier.

Since then, economic data has been mixed, with weaker retail sales and manufacturing reports balanced by continued strong job growth.

But some important pieces of the puzzle have been missing altogether. Most notably, the report on gross domestic product for the last quarter of 2018 was delayed by the recent government shutdown.

That report is due to be released on Thursday, and will be followed on Friday by the jobs report for February.

(Reporting by Howard Schneider and Pete Schroeder Editing by Paul Simao) ((howard.schneider@thomsonreuters.com; +1 202 789 8010;))

U.S. weekly jobless claims retreat from one-and-a-half-year high

Job seekers and recruiters gather at TechFair in Los Angeles, California, U.S. March 8, 2018. REUTERS/Monica Almeida

By Lucia Mutikani

WASHINGTON (Reuters) – The number of Americans filing applications for unemployment benefits dropped from near a 1-1/2-year high last week, but the decline was less than expected, suggesting some moderation in the pace of job growth.

Still, the Labor Department’s report on Thursday continued to point to strong job market conditions, which should underpin the economy amid rising headwinds, including a fading fiscal stimulus boost and a trade war between Washington and Beijing, as well as slowing growth in China and Europe.

The Federal Reserve last week kept interest rates steady but said it would be patient in lifting borrowing costs further this year in a nod to growing uncertainty over the economy’s outlook. The U.S. central bank removed language from its December policy statement that risks to the outlook were “roughly balanced.”

“Labor market conditions remain quite positive, good news for workers, for the consumer sector and the economy more broadly,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors in Kalamazoo, Michigan.

Initial claims for state unemployment benefits tumbled 19,000 to a seasonally adjusted 234,000 for the week ended Feb. 2, the Labor Department said on Thursday. The drop partially unwound the prior week’s jump, which lifted claims to 253,000, the highest reading since September 2017.

Claims that week were boosted by layoffs in the service industry in California, most likely striking teachers in Los Angeles.

A 35-day partial shutdown of the federal government as well as difficulties adjusting the data around moving holidays like Martin Luther King Jr. day, which occurred later this year than in recent years, also probably contributed to the spike in filings.

The longest shutdown in history likely forced workers employed by government contractors to file claims for unemployment benefits.

The shutdown ended on Jan. 25 after President Donald Trump and Congress agreed to temporary government funding, without money for his U.S.-Mexico border wall.

Economists polled by Reuters had forecast claims falling to 221,000 in the latest week.

U.S. stocks were trading lower on renewed fears of a global slowdown after the European Union cut its economic growth forecasts and White House adviser Larry Kudlow warned there was still a sizable distance to go on U.S.-China trade talks. The dollar was little changed against a basket of currencies, while U.S. Treasury prices rose.

MOMENTUM SLOWING

The Labor Department said no states were estimated last week. The four-week moving average of initial claims, considered a better measure of labor market trends as it irons out week-to-week volatility, rose 4,500 to 224,750 last week. Claims by federal government workers, which are filed separately and with a one-week lag fell 8,070 to 6,669 in the week ended Jan. 26.

“Claims remain important to watch in the weeks ahead,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics in White Plains, New York. “The data are suggesting at least some slowing in employment growth.”

The government reported last Friday that non-farm payrolls increased by 304,000 jobs in January, the largest gain since February 2018. Thursday’s claims report showed the number of people receiving benefits after an initial week of aid fell 42,000 to 1.74 million for the week ended Jan. 26.

These so-called continuing claims had raced to a nine-month high in the prior week. The four-week moving average of continuing claims rose 4,250 to 1.74 million.

(Reporting By Lucia Mutikani; Editing by Andrea Ricci)

Fed leaves rates unchanged, says will be ‘patient’ on future hikes

FILE PHOTO: The Federal Reserve building is pictured in Washington, DC, U.S., August 22, 2018. REUTERS/Chris Wattie/File Photo

By Howard Schneider and Jason Lange

WASHINGTON (Reuters) – The Federal Reserve held interest rates steady on Wednesday but said it would be patient in lifting borrowing costs further this year as it pointed to rising uncertainty about the U.S. economic outlook.

While the Fed said continued U.S. economic and job growth were still “the most likely outcomes,” it removed language from its December policy statement that risks to the outlook were “roughly balanced” and struck language that projected “some further” rate hikes would be appropriate in 2019.

In a separate release from its policy statement, the U.S. central bank also said while it was continuing its monthly balance sheet reduction, it was prepared to alter the pace “in light of economic and financial developments” in the future.

The Fed said in that same document that it had decided to continue managing policy with a system of “ample” reserves, a signal that its balance sheet rundown may end sooner than expected.

Taken together, the two documents were meant to convey maximum flexibility from a central bank buffeted in recent weeks by financial market volatility and signs of a global economic slowdown.

U.S. stock markets extended their gains following the Fed’s statement, and bond yields dropped as investors gauged the language adjustment as signaling a low probability of additional rate hikes any time soon. The dollar weakened against a basket of major trading partners’ currencies.

“In light of global economic and financial developments and muted inflation pressures, the committee will be patient” in determining future rate hikes, the Fed’s rate-setting committee said in its policy statement after a two-day meeting.

The Fed made no change to the $50 billion monthly runoff of Treasury bonds and mortgage-backed securities from its balance sheet. Some traders have urged it to slow or halt its pullback from the bond markets, at least for now.

“Overall this signals the Fed will not be on autopilot going forward,” said Justin Lederer, Treasury analyst at Cantor Fitzgerald in New York.

Fed Chairman Jerome Powell is scheduled to hold a press conference at 2:30 p.m. (1930 GMT).

The Fed raised rates four times last year and signaled in December that it would do so twice this year.

The economic outlook, however, has become more clouded as a result of recent volatility in financial markets and signs that growth is slowing overseas, including in China and the euro zone. There are also fears the 35-day partial shutdown of the U.S. government may crimp consumer spending.

The Fed on Wednesday left its overnight benchmark lending rate in a target range of 2.25 percent to 2.50 percent.

The slight downgrade in the Fed’s language around rate increases included a change in its description of economic growth from “strong” to “solid,” and it noted that market-based measures of inflation compensation have “moved lower in recent months.”

The Fed’s policy decision was unanimous.

(Reporting by Howard Schneider and Jason Lange; Editing by Paul Simao)

Wall St. hits fresh year-lows on threat of government shutdown, slowing growth

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., December 21, 2018. REUTERS/Bryan R Smith

By Medha Singh

(Reuters) – Wall Street fell in volatile trading on Friday, after a few failed attempts at a rally, led by a drop in technology and other high-growth sectors, while defensive stocks rose amid concerns of slowing growth and a looming government shutdown.

The three major indexes swung between losses and gains of more than 1 percent as fragile investor nerves were tested by news of turmoil in Washington and soothing comments from an influential Federal Reserve official.

The S&P 500, already on pace for its worst December since the Great Depression, hit its lowest since August 2017. The Dow fell to its lowest since October 2017, while the Nasdaq sank to a 15-month low, toying with bear market territory for the second day in a row.

The defensive consumer staples, utilities and real estate sectors logged gains of 0.1 percent to 0.77 percent, while all the other eight S&P sectors declined.

“Investors are looking for cover. Within equities, investors are certainly gravitating towards the traditionally defensive segments of the market,” said Mike Loewengart, vice-president of investment strategy at E*TRADE Financial in New York.

The technology index sank 1.54 percent, while communication services, which houses high-growth names such as Facebook Inc and Alphabet Inc, dropped 2.2 percent.

President Donald Trump said there was a very good chance a government funding bill, which included funding for a wall along Mexico border, would not pass the Senate. Those worries were compounded by the sudden resignation of U.S. Defense Secretary Jim Mattis.

“I think it’s a confluence of all the known issues that the investors have been digesting for the last few weeks. We have the prospect of a government shutdown today. We have more shakeups within the Trump administration,” Loewengart said.

The markets got a lift earlier after New York Fed President John Williams said on CNBC the central bank is open to reassessing its views and listening to market signals that the economy could fall short of expectations.

Williams’ comments come after the Fed said on Wednesday it would largely stick to its plan to keep raising interest rates, spooking investors already grappling with mounting evidence of slowing growth and triggering the slide on Wall Street.

At 1:20 p.m. ET, the Dow Jones Industrial Average was down 169.07 points, or 0.74 percent, at 22,690.53, the S&P 500 was down 24.57 points, or 1.00 percent, at 2,442.85 and the Nasdaq Composite was down 127.58 points, or 1.95 percent, at 6,400.83.

Adding to the mix was “quadruple-witching,” when options on stocks and indexes as well as futures on indexes and stocks expire, tending to raise volumes.

Helping stanch the bleeding on Friday was Nike Inc, which jumped 6.2 percent after the company’s quarterly results beat Wall Street estimates on strength in North America. The stock was the biggest driver of gains on the Dow and S&P.

The three main Wall Street indexes are already in correction territory, having fallen more than 10 percent from their record closing highs. They are closing in on bear market territory, which is marked when an index closes more than 20 percent below its closing high.

Declining issues outnumbered advancers for a 2.52-to-1 ratio on the NYSE and a 3.32-to-1 ratio on the Nasdaq. The S&P index recorded no new 52-week highs and 102 new lows, while the Nasdaq recorded four new highs and 659 new lows.

(Reporting by Medha Singh in Bengaluru; Editing by Shounak Dasgupta)

Fed raises interest rates, signals more hikes ahead

A screen displays the headlines that the U.S. Federal Reserve raised interest rates as a trader works at a post on the floor of the New York Stock Exchange (NYSE) in New York, U.S., December 19, 2018. REUTERS/Brendan McDermid

By Ann Saphir and Howard Schneider

WASHINGTON (Reuters) – After weeks of market volatility and calls by President Donald Trump for the Federal Reserve to stop raising interest rates, the U.S. central bank instead did it again, and stuck by a plan to keep withdrawing support from an economy it views as strong.

U.S. stocks and bond yields fell hard. With the Fed signaling “some further gradual” rate hikes and no break from cutting its massive bond portfolio, traders fretted that policymakers could choke off economic growth.

“Maybe they have already committed their policy error,” said Fritz Folts, chief investment strategist at 3Edge Asset Management. “We would be in the camp that they have already raised rates too much.”

Interest rate futures show traders are currently betting the Fed won’t raise rates at all next year.

Wednesday’s rate increase, the fourth of the year, pushed the central bank’s key overnight lending rate to a range of 2.25 percent to 2.50 percent.

In a news conference after the release of the policy statement, Fed Chairman Jerome Powell said the central bank would continue trimming its balance sheet by $50 billion each month, and left open the possibility that continued strong data could force it to raise rates to the point where they start to brake the economy’s momentum.

Powell did bow to what he called recent “softening” in global growth, tighter financial conditions, and expectations the U.S. economy will slow next year, and said that with inflation expected to remain a touch below the Fed’s 2 percent target next year, policymakers can be “patient.”

Fresh economic forecasts showed officials at the median now see only two more rate hikes next year compared to the three projected in September.

But another message was clear in the statement issued after the Fed’s last policy meeting of the year as well as in Powell’s comments: The U.S. economy continues to perform well and no longer needs the Fed’s support either through lower-than-normal interest rates or by maintaining of a massive balance sheet.

“Policy does not need to be accommodative,” he said.

In its statement, the Fed said risks to the economy were “roughly balanced” but that it would “continue to monitor global economic and financial developments and assess their implications for the economic outlook.”

The Fed also made a widely expected technical adjustment, raising the rate it pays on banks’ excess reserves by just 20 basis points to give it better control over the policy rate and keep it within the targeted range.

Federal Reserve Board Chairman Jerome Powell arrives at his news conference after a Federal Open Market Committee meeting in Washington, U.S., December 19, 2018. REUTERS/Yuri Gripas

Federal Reserve Board Chairman Jerome Powell arrives at his news conference after a Federal Open Market Committee meeting in Washington, U.S., December 19, 2018. REUTERS/Yuri Gripas

CHOPPY WATERS

The decision to raise borrowing costs again is likely to anger Trump, who has repeatedly attacked the central bank’s tightening this year as damaging to the economy.

The Fed has been raising rates to reduce the boost that monetary policy gives to the economy, which is growing faster than what central bank policymakers view as a sustainable rate.

There are worries, however, that the economy could enter choppy waters next year as the fiscal boost from the Trump administration’s spending and $1.5 trillion tax cut package fades and the global economy slows.

“I think that markets were looking for more in terms of the pause,” said Jamie Cox, managing partner at Harris Financial Group in Richmond, Virginia.

“It’s not as dovish as expected, but I do believe the Fed will ultimately back off even further as we move into the new year.”

The benchmark S&P 500 index <.SPX> tumbled to a 15-month low, extending a streak of volatility that has dogged the market since late September. The index is down nearly 15 percent from its record high.

Benchmark 10-year Treasury yields fell as low as 2.75 percent, the lowest since April 4.

ECONOMIC PROJECTIONS

Fed policymakers’ median forecast puts the federal funds rate at 3.1 percent at the end of 2020 and 2021, according to the projections.

That would leave borrowing costs just above policymakers’ newly downgraded median view of a 2.8 percent neutral rate that neither brakes nor boosts a healthy economy, but still within the 2.5 percent to 3.5 percent range of Fed estimates for that rate.

Powell parried three questions about whether the Fed intended to restrict the economy with its rate policy, but gave little away.

“There would be circumstances in which it would be appropriate for us to go past neutral, and there would be circumstances in which it would be wholly inappropriate to do so.”

Gross domestic product is forecast to grow 2.3 percent next year and 2.0 percent in 2020, slightly weaker than the Fed previously anticipated. The unemployment rate, currently at a 49-year low of 3.7 percent, is expected to fall to 3.5 percent next year and rise slightly in 2020 and 2021.

Inflation, which hit the central bank’s 2 percent target this year, is expected to be 1.9 percent next year, a bit lower than the 2.0 percent forecast three months ago.

There were no dissents in the Fed’s policy decision.

(Reporting by Ann Saphir and Howard Schneider; Additional reporting by Lewis Krauskopf in New York; Editing by Paul Simao and Dan Burns)

Fed expected to increase rates, may signal fewer hikes ahead

FILE PHOTO: U.S. President Donald Trump looks on as Jerome Powell, his nominee to become chairman of the U.S. Federal Reserve, speaks at the White House in Washington, U.S., November 2, 2017. REUTERS/Carlos Barria/File Photo

By Ann Saphir and Howard Schneider

WASHINGTON (Reuters) – The U.S. Federal Reserve is expected to raise interest rates on Wednesday, but may cut the number of hikes it anticipates next year and signal an earlier end to its monetary tightening in the face of financial market volatility and rising recession fears.

The central bank is due to announce its decision at 2 p.m. EST (1900 GMT) after its final two-day policy meeting of the year. Fed Chairman Jerome Powell is scheduled to hold a press conference half an hour later.

Investors widely expect the Fed will lift borrowing costs by a quarter of a percentage point to a range of between 2.25 percent and 2.50 percent. It would be the fourth rate hike of the year and the ninth since the central bank began its current tightening cycle in December 2015.

A rate hike on Wednesday could draw the ire of the White House. President Donald Trump has repeatedly attacked the Fed for raising rates this year, saying it was undercutting his efforts to boost the economy. On Tuesday, Trump warned Fed policymakers not to “make yet another mistake.”

The Fed’s tightening is designed to reduce the monetary policy boost to a U.S. economy that is now growing much faster than central bank policymakers think it can sustain.

With the price of oil tumbling, economic growth in Europe and China slipping, and the fiscal stimulus from the Trump administration’s $1.5 trillion tax cut package expected to fade, Fed policymakers appear ready to back away from their prior view that the economy could weather three more rate hikes next year.

Fresh Fed economic forecasts to be released along with the policy statement may suggest that two rate hikes is more likely, economists say. Traders of interest rate futures do not even think the Fed will manage one hike.

“You are at an inflection point,” said Carl Tannenbaum, chief economist at Northern Trust. “You are most likely seeing growth slowing and you don’t know how much growth and what kind of growth is left over after the fiscal stimulus wears off. And that’s why they don’t know if they need zero, one, or more rate hikes.”

U.S. stocks were broadly higher Wednesday morning on investor optimism the Fed would signal it was near the end of its tightening cycle. The S&P 500 index & SPX has tumbled more than 12 percent since late September and, barring a turnaround, is on pace for its poorest December performance since 1931.

With borrowing costs after Wednesday’s expected rate hike close to, if not in, the broad range that Fed officials have identified as “neutral” for a healthy economy, policymakers are also likely to emphasize that future rate-setting decisions will hinge on new economic data.

That may be particularly important as data pulls the central bank in different directions, with a strong labor market and robust output suggesting the need for higher rates, and a weaker global economy and U.S. bond yields suggesting not.

The divergence between the U.S. economy and the rest of the world was cast into stark relief after FedEx Corp slashed its profit outlook on Tuesday. FedEx, seen as a bellwether for global trade, flagged a litany of issues including a Brexit-led slowdown in the United Kingdom, a contraction in the German economy and slowing China demand due to an ongoing trade spat with the United States.

FORWARD GUIDANCE

Economists say the Fed will probably modify or remove from its policy statement a reference to the likelihood that “further gradual increases” in its key overnight lending rate will be needed.

Doing so would mark one more step in the Fed’s march away from its reliance on forward guidance to shape market expectations in the wake of the 2007-2009 financial crisis and recession.

It could also help the central bank guard against criticism, whether from Trump or others, by allowing Powell to point to the economic realities on the ground as forcing his hand on any future rate hikes.

“They want to get to the place where they can say all decisions are data-dependent,” said Vincent Reinhart, chief economist at Standish Mellon Asset Management.

(Editing by Paul Simao)

Fed’s Powell: U.S. economy performing ‘very well’ though benefits uneven

FILE PHOTO: Federal Reserve Board Chairman Jerome Powell speaks at his news conference after the two-day meeting of the Federal Open Market Committee (FOMC) on interest rate policy in Washington, U.S., June 13, 2018. REUTERS/Yuri Gripas/File Photo/File Photo/File Photo

(Reuters) – The U.S. economy is “performing very well overall,” Federal Reserve Chairman Jerome Powell said in remarks prepared for the opening of a rural housing conference in Washington.

The job market in particular “by many national-level measures…is very strong,” with unemployment at a 50-year low, Powell said, capping a week of widespread market nervousness with a reminder that the U.S. economy continues to expand.

Powell’s brief prepared statement did not address monetary policy or the Fed’s upcoming meeting, at which the central bank will decide whether to raise interest rates and will also release new economic projections for the coming year.

Powell noted to the Housing Assistance Council, a nonprofit that focuses on rural housing issues, that the benefits of the ongoing recovery have not spread evenly around the country but have been concentrated in major cities.

“Some communities have yet to feel the full benefits of the ongoing expansion,” Powell said, with double-digit unemployment still the norm in more than two dozen counties and nearly a third of rural homes without broadband internet.

(Reporting by Howard Schneider in Indianapolis; editing by Diane Craft)

Fed’s Williams expects further U.S. rate increases into next year

President and Chief Executive Officer of the U.S. Federal Reserve Bank of San Francisco, John Williams, gestures as he addresses a news conference in Zurich, Switzerland September 22, 2017. REUTERS/Arnd Wiegmann

By Jonathan Spicer

NEW YORK (Reuters) – One of the most influential Federal Reserve policymakers said on Tuesday he expects further interest-rate hikes continuing next year since the U.S. economy is “in really good shape,” reinforcing the Fed’s upbeat tone in the face of growing doubts in financial markets.

Even as New York Fed President John Williams told reporters he expects the U.S. expansion to carry on and surpass its previous record around mid-2019, stock markets headed lower Tuesday morning while a potentially worrying trend of “inversion” continued to grip Treasury markets.

The Fed is expected to raise its policy rate another notch this month and, according to policymakers’ forecasts from September, aims to continue tightening monetary policy three more times next year. Futures markets, however, are betting a slowdown overseas and in sectors like U.S. housing will force the Fed to stop short.

Yet Williams, a permanent voter on policy and close ally of Fed Chair Jerome Powell, said lots of signs point to a “quite strong” and healthy labor market, and he predicted economic growth of around an above-potential 2.5 percent in 2019.

“Given this outlook I describe of strong growth, strong labor market and inflation near our goal – and taking into account all the various risks around the outlook – I do continue to expect that further gradual increases in interest rates will best foster a sustained economic expansion and a sustained achievement of our dual mandate,” Williams said at the New York Fed.

(Reporting by Jonathan Spicer; Editing by Chizu Nomiyama)

U.S. consumer confidence at 18-year high; house price gains slow

FILE PHOTO - A home for sale is seen in Santa Monica, California, U.S., March 21, 2017. REUTERS/Lucy Nicholson

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. consumer confidence rose to an 18-year high in October, driven largely by a robust labor market, bolstering expectations that strong economic growth would continue through early 2019.

But a weakening housing market and tightening financial market conditions are casting a shadow on the economic expansion that is in its ninth year, the second longest on record. Home price gains slowed further in August, other data showed, another sign that higher mortgage rates were weighing on housing demand.

“We don’t know how long this is going to hold up, but the consumer is bullish on the outlook and this means the economy is going to continue to advance in this long economic expansion from the last recession,” said Chris Rupkey, chief economist at MUFG in New York.

The Conference Board said its consumer confidence index reading rose to 137.9 this month, the highest since September 2000, from a downwardly revised 135.3 in September. Economists polled by Reuters had forecast the consumer index slipping to 136.0 from the previously reported 138.4 in September.

Consumers’ assessment of current business and labor market conditions improved despite a sharp stock market sell-off and jump in U.S. Treasury yields, which have tightened financial market conditions. The stock market’s S&P 500 index has dropped more than 8 percent this month.

The Conference Board survey puts more emphasis on the labor market. The survey’s so-called labor market differential, derived from data about respondents saying jobs are scarce or plentiful, was the most favorable since January 2001.

This measure closely correlates to the unemployment rate in the Labor Department’s employment report. Economists said it raised the possibility that the unemployment rate could drop further from a near 49-year low of 3.7 percent. The government will publish its October employment report on Friday.

“At the end of the day, it is the job market, or the security of having a job with a regular paycheck, that supports confidence and spending,” said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto. “So far, so good.”

Consumer confidence at multi-year highs bodes well for spending in the upcoming holiday season. More consumers planned to buy automobiles and houses over the next six months, but the share of those intending to purchase major appliances slipped.

The dollar was near a 2 1/2-month high against a basket of currencies, while stocks on Wall Street were higher. U.S. Treasury yields rose.

HOUSING DEMAND SOFTENING

The economy grew at a 3.5 percent annualized rate in the third quarter and is considered on course to achieve the Trump administration’s target of 3.0 percent annual growth this year.

Growth has been spurred by a $1.5 trillion tax cut. Economists estimate the tax cut stimulus peaked in the third quarter and expect growth to gradually slow from the second half of 2019, restrained in part by higher interest rates.

The Federal Reserve has increased borrowing costs three times this year and in September removed a reference to monetary policy remaining “accommodative” from its policy statement. The U.S. central bank is expected raise rates gain in December.

Higher borrowing costs have cooled housing demand; sales and homebuilding declined in September.

A separate report on Tuesday showed the S&P CoreLogic Case-Shiller composite home price index of 20 U.S. metropolitan areas rose 5.5 percent in August from a year ago after increasing 5.9 percent in July. Growth in house prices has slowed from as high as 6.8 percent in March. Prices had been boosted by a shortage of properties on the market, but now mortgage rates have risen to seven-year highs.

“The sharp gain in mortgage rates thus far in 2018 continues to weigh on home sales as well as home prices,” said Brent Campbell, an economist at Moody’s Analytics in West Chester, Pennsylvania.

“With the Fed continuing to tighten monetary policy through the rest of 2018 and into 2019, mortgage rates are likely to rise, even more, resulting in less housing demand and modest house price growth in 2019.”

(Reporting By Lucia Mutikani; Editing by David Gregorio)