United States dollar declines amid Fed Chair Powell's speech

Aug 27, 2018, 01:37
United States dollar declines amid Fed Chair Powell's speech

The Fed has been coming to Jackson Hole since 1981.

"If the strong growth in income and jobs continues, further gradual increases in the target range for the federal funds rate is likely to be appropriate", Powell said here at the central bankers' annual gathering, which is organised by the Federal Reserve Bank of Kansas City.

"We can afford to wait and see and inflation does start to move up, well, we can move up", he added.

However, Trump said he disagreed with the central bank's policy of raising rates because it could hurt the economy, and promised to maintain his criticism if Powell kept increasing the cost of borrowing.

Powell noted that the economy remained strong and anyone who wanted a job could find one.

"Expressions of angst about higher interest rates are not unique to this administration", she said in a separate interview with CNBC. But it also criticizes preferences cited by some Fed officials who have urged moving more slowly to raise interest rates, seeking more evidence of a rebound in inflation before doing so.

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

U.S. Federal Reserve Chairman Jerome Powell said on August 24 that the economy is strong and there was no clear sign of inflation moving above the central bank's 2 percent target.

Both separately dismissed any notion that Trump's critical comments about the Fed's rate increases would factor into their policies.

Powell has likely put a floor under gold, that is, the recent low of $1,160 is unlikely to be breached in the near-term unless the inflation readings show signs that the economy is overheating, in which case the Fed may be compelled to tighten the policy at a faster pace and lift rates above the neutral level. It is widely expected to hike rates again when it next meets in September. While the trade conflict between Washington and Beijing darkens the economic outlook, the supply versus demand position in oil markets remains relatively tight -especially because of the looming USA sanctions against Iran.

Powell says the Fed expects those positive economic trends to continue, especially with the added stimulus of last December's big tax cut.

What is inflation in today's economy?

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

"Jerome Powell hit the dollar with a fairly dovish set of remarks at Jackson Hole", said Neil Wilson of Markets.com said in a note to clients.

To emphasize the Fed's attention to inflation, Powell borrowed a line that European Central Bank President Mario Draghi used in July 2012 to preserve the euro.

The Jackson Hole speech follows closely behind President Trump's criticism of the Fed for its continued tightening of USA monetary policy ever since Powell, who was nominated for the role by Trump, took the helm in February. 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. The chairman reminded his audience of central bankers and economists that if the Fed stubbornly tried to defend a previous estimate for full employment - a term economists refer to as U-star - the cost would be 1.6 million jobs.