Fed chairman defends interest rate policy

Fed chairman defends interest rate policy

Fed chairman defends interest rate policy

The dollar weakened as Mr Powell, speaking at a meeting of global central bankers in Jackson Hole, Wyoming, said a gradual approach of raising rates remains appropriate to protect the United States economy and keep job growth as strong as possible with inflation under control. Fed officials have been forced to question the location of its "guiding stars" of economic policy, said Powell: the assumed levels for the natural rate of unemployment, neutral interest rate and stable inflation.

The Fed in June increased interest rates for the second time this year, and pencilled in two more rate hikes for the year.

The single currency weakened on Thursday after Italian deputy prime minister Luigi Di Maio threatened his party would vote to suspend funding to the European Union next year unless other EU countries agreed to take in migrants.

Just this week, a paper by Fed economists warned that even though there is uncertainty about estimates of the natural rate of unemployment, it's still better to set rates based on those than just wait for inflation. The bank made a total of seven rate hikes since December 2015, three coming previous year.

Although Trump appointed Powell, he criticised the Fed chairman for not doing enough to support trade negotiations around the world by setting monetary policy to support the U.S. economy. But the focus has shifted back to Fed policy, with bond traders now more certain of two rate hikes by year-end.

This is Powell's first speech before the year's biggest meeting of monetary policy makers and economists since taking the reins as Fed chair in February. 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.

"We have seen no clear sign of an acceleration above two percent and there does not seem to be an elevated risk of overheating", Powell said in prepared remarks. "Inflation is near our 2 percent objective, and most people who want a job are finding one".

St. Louis Fed President James Bullard said earlier on Friday he'd prefer a pause on the rate hikes, given that the economic stimulus from the Trump administration's tax cuts and a budget agreement that boosts government spending will likely fade next year. "If the strong growth in income and jobs continues, further gradual increases in the target range for the federal funds rate will likely be appropriate".

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

Kansas City Fed President Esther George, who in 2016 dissented several times in favor of higher rates, made a similar point, in three separate broadcast interviews ahead of the conference.

Although George noted that "expressions of angst" from the White House when there are higher interest rates is not necessarily unique to the Trump administration, she said the Fed will ultimately remain faithful to preserving the value of the us dollar.

Investors have fully priced in a rate increase next month and see an above-60 percent probability of another move by the Fed's meeting in December.

"He did, however, emphasise that if the economic outlook changed markedly, the Fed is ready to change direction too, saying he is "confident" the FOMC would do "whatever it takes" should crisis again threaten".

Powell's comments at the annual gathering of economic policymakers in Jackson Hole, Wyoming, will be viewed as a rebuke to the president.

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