Markets welcome Fed speech aimd emerging market jitters

Fed chair Jerome Powell’s highly anticipated speech: what to expect

Fed chair Jerome Powell’s highly anticipated speech: what to expect

Powell did not mention Trump in a speech at a central bankers conference in Jackson Hole, Wyo.

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.

The dollar slid against the euro Friday while stock markets mostly rose before a key speech by the head of the US Federal Reserve. In addition, he stressed that estimates of how the economy works - like those followed by Ph.D. economists on the Fed staff - were at best "hazy" navigational guides.

"We have seen no clear sign of an acceleration above two per cent and there does not seem to be an elevated risk of overheating", Powell said in prepared remarks.

Powell did not directly reassert the Fed's legal independence from the White House. Others believe the economy will begin to slow, and that additional rate increases could exacerbate the slowdown.

"My colleagues and I are carefully monitoring incoming data, and we are setting policy to do what monetary policy can do to support continued growth, a strong labor market, and inflation near 2 percent", he said.

Once unemployment falls below that level, inflation pressures can build, forcing the Fed to raise interest rates. 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.

The Fed chairman discussed risk-management strategy at a time when the economy's structure is changing and uncertain.

The paper speaks to a central debate facing the Fed right now: how to set rates when inflation doesn't appear to be accelerating and the unemployment rate is falling to levels that economists expect should push up wages and prices. Under the Fed's rotating voting system for Fed regional bank presidents Bullard does not have a vote this year, but he participates in rate-setting discussions.

Fed chair Jerome Powell’s highly anticipated speech: what to expect

Where he stands on the pace of interest rate hikes will be scrutinized after minutes from the Fed's most recent policy meeting indicated the central bank would tighten monetary policy soon. The president nominated Powell past year to replace Janet Yellen.

Powell acknowledged that the Fed is often at risk of "moving too fast and needlessly shortening the expansion, versus moving too slowly and risking a destabilizing overheating".

Questioning Fed actions is normally off limits for United States politicians, since it could raise fears central bankers would feel political pressure and fail to act to head off rising inflation.

Following Powell's Friday morning speech, the Dow soared 120 points and the S&P closed at a record high.

He said there is also much uncertainty over the "neutral" rate of inflation - the point at which the Fed's policy rate is neither stimulating economic growth or holding it back.

Asked at the time another bout of Trump critiques, Powell said "no one in the administration has said anything to me that really gives me concern on this front". "I'm not thrilled", Trump said in an interview with Reuters.

The comments, which also saw the president refuse to explicitly back the Fed's independence, has dented the dollar in recent days, handing a boost to oil which is priced in the U.S. currency.

"Financial conditions are very good, and (Powell) is tightening in line with those trends", Boone said.

The US Dollar (via the DXY Index) is closing in on its lows of the week established on Wednesday as traders are heading into the weekend disappointed by what they've heard so far at the Jackson Hole Economic Policy Symposium.

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