Federal Reserve chairman Jerome Powell said on Wednesday that the central bank's key benchmark interest rate is near the neutral rate, which is an important distinction from his message in October about the neutral rate being far away.
"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", Powell said while speaking at the Economic Club of NY.
And Powell's words stood in stark contrast to his remarks of a month earlier, when he said rates were still "a long way" from neutral, perhaps suggesting the Fed actually had a lot more tightening to do.
"Powell is not suggesting that since they are just below the range they may stop soon". Fed officials agreed that it would be "appropriate" to take action before the December meeting if necessary to keep the federal funds rate "well within" the Fed's target range, according to the minutes.
But few economists seem to know what "neutral" means.
On Wednesday Powell said the Fed is paying "very close" attention to economic data even as it expects continued "solid" growth, low unemployment and inflation near its 2 percent target.
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".
A dovish tone from Fed Chairman Jerome Powell lifted world stocks to their highest in more than two weeks on Thursday, but an uncompromising tone from U.S. President Trump on trade dampened optimism and set U.S. stocks up for a weaker open.
Though Mr Powell's comments were markedly different from his characterisation of Fed policy last month, he left ample room for the central bank to continue raising rates, depending on the economy's performance.
"By clearly and transparently explaining our policies, we aim to strengthen the foundation of democratic legitimacy that enables the Fed to serve the needs of the American public", he said. Investors interpreted as Powell either changing his position on interest rates or attempting to correct the incorrect interpretation of his earlier remarks. "We now run a larger risk" that communications at the Fed's December meeting will be more hawkish than markets expect, he said.
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. Three of those increases have been under Powell.
Analysts think a rate hike next month is likely, but economists admit three rate increases for next year are beginning to look less certain, especially if stock market volatility increases, and consumer and business sentiment worsens in early 2019.
"If Trump were able to get those additional concessions from China at this meeting, and announce certainly no trade deal, but. a commitment to further negotiations to work towards a deal and in the interim not see further escalation, then that's something markets would latch onto", Page added.