Fed will do 'whatever it takes' for USA economy: Chairman Powell

27 August, 2018, 05:36 | Author: Elaine Woods
  • 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

The rate hikes are meant to prevent the economy from overheating and inflation from accelerating.

Elsewhere on currency markets the United States dollar were holding gains ahead of the annual Jackson Hole symposium of central bankers, where Fed boss Jerome Powell is due to speak later Friday. 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 will win. But during this period of time, the Fed should give me some help, "he added.

We strongly doubt that the Fed will change its policy approach based on his cajoling", says Paul Ashworth, chief U.S. economist at Capital Economics. "We are setting policy to do what monetary policy can do to support continued growth, a strong labor market and inflation near 2 percent".

"While the unemployment rate is below the [Federal Open Market] Committee's estimate of the longer-run natural rate, estimates of this rate are quite uncertain", he added. "He's going to let the data decide". The economy is strong and the Fed must walk a tight line between not snuffing out growth and not allowing an overheated economy to produce runaway inflation.

Interest rate futures traders are pricing in a 98-percent chance of a rate hike at the Fed´s September meeting, and a 68 percent chance of an additional hike in December, according to the CME Group´s FedWatch Tool.

Powell sketched a positive picture of the USA economy and said the Fed's incremental approach to raising rates has so far succeeded.

-USD slides after Powell talks policy in Jackson Hole.

Powell took over from Yellen in February in the midst of a mature expansion that was given a big boost by Republican tax cuts and a higher federal spending.

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The research theme at the Jackson Hole conference this year involves change in market structure, and Powell used that topic to elaborate on why shifts in concepts like the level of "full employment" and the neutral rate of interest justify gradual rate increases. Powell's remarks appear to be a response to that criticism, as was widely expected.

US Federal Reserve Chair Jerome Powell has reiterated that the central bank will stick to the strategy of gradual rate hikes to manage potential risks and support domestic economic recovery. While unemployment is low, "there does not seem to be an elevated risk of overheating". "If the strong growth in income and jobs continues, further gradual increases ... will likely be appropriate".

"It looks like he understands the light touch he has to have on raising rates versus inflation", Kim Forrest, senior portfolio manager at Fort Pitt Capital Group LLC in Pittsburgh, said by phone.

The Fed chief has addressed the issue of central bank independence various times, stressing the need for policy deliberations to be free of political considerations. Yelena Shulyatyeva, Tim Mahedy and Carl Riccadonna, Bloomberg Economics. Rates are still low by any historical measure. If they ever broke free, the Fed would act aggressively.

Powell said that if the economic outlook markedly changed, the Fed would be prepared to change course.

However, the market appeared to take Powell's speech as a signal the Fed will soon slow the pace of its interest rate rises, likely once into 2019.

"When you are uncertain about the effects of your actions, you should move conservatively".

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