Fed chair finally responds to Trump’s attacks over rate hikes

On the face of it, the economic context of Jay Powell’s first speech at Jackson Hole’s annual meeting as chairman of the Federal Reserve (Fed) could hardly seem more benign. His speech reflected that, brimming with criticism of reliance on economic models that gauge current economic conditions based on assumptions about the “natural” or “neutral” rate of unemployment, interest rate, inflation, or economic growth.

But Powell’s remarks weighed on the dollar.

Canada’s central banker, Stephen Poloz, is to address the convention on Saturday. The president nominated Powell previous year to replace Janet Yellen.

“Any comments on current Fed policy will draw even more than the usual attention given recent and unprecedented criticism of the Fed by President Trump”, Larry Hatheway, chief economist at GAM Investments, told Bloomberg News.

There was the usual exchange of views on such technical matters as the level of the neutral rate of interest, the rate that neither encourages nor discourages economic activity. Is it necessary to raise rates to a restrictive territory?

Fed officials have debated over the pace at which they should normalize interest rates after slashing them to near-zero levels during the 2008 crisis.

Powell said the uncertainty about how low unemployment could go without triggering rampant inflation called for an approach focused on risk-management. Traders of interest rate futures kept their bets on rate hikes in both September and December. I’m not excited, “said Trump”.

China’s central bank said on Friday that it was adjusting its methodology for fixing the yuan’s daily midpoint, amid broad dollar strength and ongoing trade tensions between Washington and Beijing. “We are negotiating very strongly and strongly with other nations”.

“We can afford to wait and see and inflation does start to move up, well, we can move up”, he added. “The clear message from Fed officials is that they remain committed to their plans”.

But Trump has said rising interest rates – which tends to strengthen the dollar, making U.S. exports more expensive – will slow the economy and offset the impact of the tax cuts he championed.

However, some Fed officials anxious that an escalation in current trade disputes could force the central bank to rethink its interest rate hike plans, according to the minutes of the Fed’s latest monetary policy meeting.

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. An inverted yield curve in the past has pointed to a recession will occur within two years. The flattening of the yield curve, which some see as a possible harbinger of a slowdown in growth, may be providing warning signs, he added. 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.

“Specifically, the reference there was that some members had become more uncomfortable with the narrative in the Fed policy statements that policy is still accommodative”, Issa said.