Dollar downbeat ahead of Powell speech, stocks subdued

Dollar downbeat ahead of Powell speech, stocks subdued

With the USA economy improving, Fed officials have signaled two more small increases are expected this year to try to prevent a jump in inflation that can come when borrowing costs are low in a growing economy. "I'm not thrilled", Trump said, referring to Powell.

Strong Performance The Fed chairman said he expected the economy's "strong performance will continue" and as a result the Fed's "gradual process of normalization remains appropriate". "Inflation is near our 2 percent objective, and most people who want a job are finding one".

"Powell is a master of plain English and his speech reinforced that neither concerns about trade, Turkey or Trump would derail the Fed's path to additional rate hikes for the remainder of 2018", said Bob Baur of Principal Global Investors, referencing both the president's attacks and the recent economic instability in Turkey.

Markets are also bracing for a speech by U.S. Federal Reserve Chairman Jerome Powell later in the day that could bring a dovish surprise.

The Dow Jones Industrial Average rose 133.37 points, or 0.52 percent, to 25,790.35, the S&P 500 gained 17.71 points, or 0.62 percent, to 2,874.69 and the Nasdaq Composite added 67.52 points, or 0.86 percent, to 7,945.98.

The Kansas City Fed's annual conference here in Grand Teton National Park is among the central bank's higher profile annual events, drawing worldwide media attention and an audience including representatives of other nations' central banks.

While his remarks will be pored over for a clue about the bank's policy plans, they will attract more interest after Donald Trump's criticism this week of its recent interest rate hikes and accusations it is not backing his economic agenda. "To return to the nautical metaphor, the FOMC has been navigating between the shoals of overheating and premature tightening with only a hazy view of what seem to be shifting navigational guides", Powell said.

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Powell said he is well aware of the consequences of the Fed acting too aggressively.

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

The Fed may raise rates again in December and possibly three more times in 2019, moves likely to draw Trump's continued ire.

"The president would like easier monetary policy or at least he would not like to see interest rates marching higher to offset the boost to the economy from his fiscal and trade policies", he said in a research note.

Other policymakers present in Jackson Hole this week have flagged what they see as the risks from Trump's trade policies, which have led to tit-for-tat tariffs with China, the European Union, Canada and others. At the same time, their trade war escalated with another round of duelling tariffs on $16 billion worth of each country's goods taking effect. However, he pointed out that gradual rate hikes were the best way to maintain high employment levels and price stability in the US.

Strong economic growth and earnings and low interest rates have combined to continue to move the US equity market higher, said Leo Grohowski, chief investment officer for BNY Mellon Wealth Management.

If hikes were to undermine growth, Powell indicated the Fed would change policy.

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