Fed will do 'whatever it takes' for U.S. economy: Chairman Powell

26 August, 2018, 23:12 | Author: Gerard Cortez
  • So far this year the rupee has weakened 8.9% while foreign investors have sold $493.40 million and $5.57 billion in equity and debt markets respectively

Powell adds that while annual inflation has risen to near the Fed's 2 per cent target rate, it doesn't seem likely to accelerate above that point.

"We know that the Fed has a hard job".

Trump's latest attacks, delivered in an interview this week, meant politics cast a shadow over the highly anticipated speech, the highlight of the annual gathering of global central bankers in Jackson Hole, Wyoming, an idyllic setting in the American West for serious discussions on how to manage the economy.

"I see the current path of gradually raising interest rates as the FOMC's approach to taking seriously both of these risks", he said. " This is good news, and we believe that this good news results in part from the ongoing normalization process, which has moved the stance of policy gradually closer to the FOMC's rough assessment of neutral as the expansion has continued".

Powell said in his Jackson Hole speech: "The economy is strong".

However, he noted the USA economy remained strong and anyone who wanted a job could find one, while prices were rising at about the Fed's target pace of 2%.

The Federal Open Market Committee's job, as Powell defined it, is to be aware of how these estimates are changing and not take them as set in stone.

At the same time, Powell said that in case of another financial crisis or intensified concern about high inflation, "We will do whatever it takes". But Steve Moore, a former adviser to the Trump campaign, said the central bank kept the policy too harsh and that "it's hard to see where the inflation is that worries the Federal Reserve so much". "The clear message from Fed officials is that they remain committed to their plans".

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On Wall Street, the Dow Jones Industrial Average rose 139.04 points, or 0.54pc, to 25,796.02.

"President Donald Trump's recent public criticism of Fed Chair Jerome Powell is a clever attempt to pre-emptively blame the Fed and its interest rate hikes for any future downturn in the U.S. economy". The president has complained that the Fed's tightening of credit could threaten the continued strong growth he aims to achieve through the tax cuts enacted late past year, a pullback of regulations and a rewriting of trade deals to better serve the United States. The rate is now at a range of 1.75 percent to 2 percent, well above the near-zero level the Fed kept it at from late 2008 to 2015 but still historically low. Talks between USA and Chinese officials in Washington over trade will continue on Thursday, although most analysts do not expect much headway to be made, with risks growing that the conflict will descend into a growth-sapping tariff war.

In his speech, Powell did not directly address what many analysts see as the most serious threat to the economy: The trade war that Trump has launched with America's main trading partners - a conflict that risks depressing USA and global economic growth the longer it goes on.

But Powell sounded bullish on the economic expansion. On Friday, Fed Chair Powell drove the dollar lower by suggesting the Fed funds rate was getting closer to neutral. In his view, that's why the Fed can continue with a gradual pace of rate hikes that began under Yellen.

"Overall, his speech did not signal any change in policy", Michael Pearce, senior USA economist at Capital Economics, wrote in a note.

"My colleagues and I are carefully monitoring incoming data", he said.

Though Powell chose not to mention Trump's criticism, other Fed officials asserted that the president's complaints about rate hikes would have no effect on their policymaking. Powell's remarks appear to be a response to that criticism, as was widely expected.

He said "one overwhelmingly important lesson for monetary policymakers: Anchoring longer-term inflation expectations is a vital precondition for reaching all other monetary policy goals". An inverted yield curve in the past has pointed to a recession will occur within two years. Beyond that, however, rates markets aren't pricing in another move until June 2019.

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