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Powell could tackle key issues in high-profile speech Friday

Powell could tackle key issues in high-profile speech Friday

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.

The Fed is very confident in the US economy and Powell indicated there is no intention of slowing down the Fed's rate hikes, said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance in Charlotte, North Carolina. "Inflation is near our 2 percent objective, and most people who want a job are finding one". The market is already pricing in two U.S. rate hikes in 2018, and the somewhat dovish remarks from Powell did not add support to the United States dollar. -China trade conflict and the Fed's latest policy meeting minutes which signaled a September interest rate rise.

Those potentially explosive political conditions became evident again on Monday after Donald Trump revealed, in an interview with Reuters, his frustration with Powell for continuing the strategy of a gradual increase in Yellen's interest rates. Various measures of wage growth are rising at annual rates of 2.5 per cent to 3 per cent and that hasn't translated into a sharp increase in prices yet.The tight labor market has produced lots of benefits, which Powell has hailed in previous remarks, saying there's a "lot to like" about low unemployment.

Although George noted that "expressions of angst" from the White House when there are higher interest rates is not necessarily unique to the Trump administration, she said the Fed will ultimately remain faithful to preserving the value of the USA dollar.

Similarly, Esther George, head of the Kansas City Fed, said she expects the central bank to raise rates twice more this year, with more next year. "If the strong growth in income and jobs continues, further gradual increases ... will likely be appropriate". Two top Fed officials made clear Thursday that Trump's criticism won't affect their decisions on whether to continue raising rates.

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

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. In June, the Fed hiked interest rates for a second time, bringing the federal funds rate up 25 basis points to its current level of 2 and now more is expected to come albeit at a snail's pace.

"What I do see here is an affirmation of the Powell Doctrine: We've got a framework of the way the world works, we have these estimates, but they are subject to imprecision", said Michael Gapen, chief USA economist at Barclays PLC in NY. But, if the bank moves too slow, the economy could overheat. 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.

Some analysts have expressed concerns that if Fed policy drives the Dollar much higher, it could endanger financial stability in the emerging world in a manner that might eventually backfire on the US. The Fed is widely expected to resume doing so at its next policy meeting late next month. He is due to speak on monetary policy later Friday.

The dollar fell for the sixth time in seven days as Powell said that gradual rate increases are likely appropriate if growth stays strong, and "there does not seem to be an elevated risk of overheating".

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