JACKSON HOLE, Wyoming (REUTERS) – The President of the Federal Reserve, Jerome Powell, defended on Friday (August 24) the attempt by the US central bank to raise interest rates as healthy for the economy and indicated that more was coming despite the criticism of President Donald Trump on the higher financing costs.
The Fed, which began to tighten its monetary policy in 2015, has raised interest rates twice this year and is expected to do so again the following month and in December.
During a research symposium in Jackson Hole, Wyoming, Powell said he "wants to explain today why my colleagues and I believe that this gradual process … remains appropriate."
"The economy is strong, inflation is close to our target of 2 percent, and most people who want a job find one … If the strong growth of income and jobs continues, further gradual increase in the target range for the federal funds rate is likely to be appropriate. "
Powell did not mention Trump's criticism of the Fed's monetary policy. In an interview with Reuters on Monday, Trump said he was "not happy" with Powell & # 39; s Fed for raising rates and said the central bank should do more to boost the economy.
In his speech, Powell simply stated that gradual interest rate hikes are the best way to protect the American economic recovery and keep job growth as strong as possible and keep inflation under control.
The benchmark S & P 500 index and the Nasdaq Composite scored all-time highs after Powell's speech while the dollar weakened against a basket of currencies. Traders of interest rate futures kept their bets on interest rate increases in September and December.
The Kansas City Fed's annual conference here at the Grand Teton National Park is one of the central bank's annual events, attracting international media attention and an audience with representatives from the central banks of other countries.
Trump "feeds the economy with tax incentives and then asks that you do not tighten interest rates, but the Fed normalizes monetary policy, not really tightening – it guides the recovery and lifting speed to the point where they are neutral." Laurence Boone, the chief economist of the OECD, said in the margins of the conference.
"The financial conditions are very good, and (Powell) is tightening in line with those trends," Boone said.
Antoinette Schoar, an economist who teaches at the MIT Sloan School of Management, said the Fed should remain "above the fight."
"The policy of the Fed should have nothing to do with politics," said Schoar, who also attends the Jackson Hole conference.
NOT ON BOARD
Fed funds and euro-dollar futures indicate that the financial markets expect only one rate hike next year, so that the interest rates will be 2.50% to 2.75% between mid-2019, compared to the Fed's current target of 1.75% up to 2%.
Fed policy makers predict three rate hikes for next year in their most recent projections, which were published in June.
However, not all policymakers of the central bank are on board of Powell's plans.
The president of St. Louis, FedEx, James Bullard said earlier on Friday that he would rather pause on the rate hikes, as the economic stimulus of the tax cuts by the Trump government and a fiscal agreement that stimulates government spending are likely to fade next year.
Other policymakers who are present in Jackson Hole this week have indicated what they see as the risks of Trump's trade policy, which led to tit-for-tat rates with China, the European Union, Canada and others .
Two days of talks between Washington and Beijing ended on Thursday without major breakthrough when their trade war escalated with the activation of another round of dueling fees for $ 16 billion in goods from each country.
NAVIGATION OF FED
The research theme at the Jackson Hole conference this year concerns a change in the market structure, and Powell used that topic to explain why shifts in concepts such as the level of "full employment" and the neutral interest rate justify gradual gradual rate increases.
He said that the Fed's past mistakes, such as a misjudgment of full employment that caused inflation in the 1970s, mean that today the central bank should not assume that its current estimates of those economic variables are accurate.
The Fed "is navigating between schools of overheating and early tightening with only a blurry picture of what the navigation guides seem to be shifting," Powell said.
Because unemployment is so low, "why is it (Federal Open Market Committee) not tightening monetary policy to tackle overheating and inflation? Why is the FOMC policy, without a clear sign of an inflation problem, at all risky? stifling job growth and continuous expansion? "The resolution, he said, is to move cautiously.
"I see the current path of gradually raising interest rates as the FOMC approach to taking both risks seriously."