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Federal Reserve in sweet spot to hike rates to neutral: Robert Heller

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U.S. stocks sank after the Fed decision on Wednesday. Wall Street has had a wild ride in the last few months amid growing worries of a global economic slowdown — which U.S. President Donald Trump has blamed in part on the Fed hiking rates.

“I think the market got what it expected and that was a 25 basis points increase, but did not get what it hoped,” John Petrides, managing director and portfolio manager at Point View Wealth Management, told Imagala.com’s “Squawk Box” on Thursday.

Petrides said investors may have been disappointed because, just last month, Fed Chair Jerome Powell said he considered the central bank’s benchmark interest rate to be near its neutral level — the point where monetary policy is neither speeding up nor slowing down the economy.

Many took that comment as a sign that the Fed could be near the end of its tightening cycle, but were let down when Powell’s latest remarks on Wednesday indicated that the central bank still intends to raise rates, Petrides noted.

A looser monetary policy stance — where interest rates are low and money supply is higher — is generally more favorable for stocks. That’s because such a policy helps to increase economic activity by encouraging more companies and individuals to lend, spend and invest in the private sector.

But Heller noted that even with the latest hike in interest rates, the Fed’s monetary policy is still accommodative overall.

“The Fed funds rate is, at the present time, not neutral but it’s accommodative. And what they have to do is to get back to neutral so they have slowly been raising their rates … and they have to do that for maybe another two or three hikes,” the former governor said.

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