The surge in U.S. stocks following Federal Reserve Chair Jerome Powell's speech -- that suggested more gradual future interest-rate hikes – may be an overreaction, according to Harvard economist Martin Feldstein. “I think the market is over interpreting,” Feldstein said during an interview with FOX Business’ Liz Claman on Wednesday.
Continue Reading Below
The Dow Jones Industrial Average jumped over 617 points, or 2.5 percent, registering the best three-day gain since 2016, with the addition of 111.22 points, or 4.22%, according to the Dow Jones Market Data Group. The S&P 500 and the Nasdaq Composite also jumped over 2 percent a piece.
In prepared remarks at the Economic Club of New York, Powell said, the central bank's benchmark interest rate is "just below" neutral.
"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," said Powell.
Feldstein, an Economic Club of New York member and one of only two people who questioned Powell Wednesday, said Powell’s speech struck a good balance for investors.
“He was very careful not to rock the boat, not to criticize the past, not to say that markets were overpriced. But I think they are overpriced,” he said.
In October, Powell said the central bank is “a long way” before getting rates to a neutral level, his latest remarks suggest otherwise.
Feldstein says the Fed should keep raising rates to protect the U.S. economy from a potential downfall.
“[The Fed] should have started raising rates several years ago so that they would have the ammunition when the economy turns down,” he said. “And I think that’s what driving the Fed now.”
The central bank’s benchmark federal funds rate influences interest rates across the economy, including the prime rate, which is used by banks to set rates for credit cards and other methods of borrowing.