Fed's Bullard wants to pause rate hikes, Mester does not

Posted August 27, 2018

While US inflation has recently moved up near 2 per cent, Powell said he sees "no clear sign of an acceleration above 2 per cent" and there does not seem to be "an elevated risk of overheating".

But lately the yield curve has been flattening and could be in danger of inverting with more Federal Reserve rate hikes.

The Fed has penciled in two more interest rate hikes this year despite risks from trade conflicts and emerging market turmoil.

Speaking at the annual gathering of global central bankers in Jackson Hole, Wyoming, Powell said the United States economy remained strong and anyone who wanted a job could find one.

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The Fed is expected to raise rates in September and once more by the end of the year.

It came after U.S. President Donald Trump on Monday criticized rate increases, saying the Fed Chairman should do more to help him to boost the economy.

While all eyes were on Fed Chair Powell ahead of his speech at 1400 GMT before a group of central bankers' at the symposium in Jackson Hole, Wyoming, Cleveland Federal Reserve President Loretta Mester raised her outlook for the economy and gross domestic product for 2018, adding that the central bank's plan for gradual interest rate increases is appropriate. The rate is now at a range of 1.75 percent to 2 percent, well above the near-zero level the Fed kept it at from late 2008 to 2015 but still historically low. That echoed a phrase that was used to describe the extraordinary steps the Fed and other central banks took after the 2008 financial crisis plunged the USA and global economies into deep recessions.

The Dow Jones Industrial Average index added 134 points, or 0.52% to 25,791, led higher by DowDuPont Inc, and Visa Inc.

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Increasing consensus on the need to continue raising US interest rates was on display at the start of the global central bankers meeting, as the longstanding distinction between so-called policy hawks, centrists and doves blurs in the face of falling unemployment. The president has complained that the Fed's tightening of credit could threaten the continued strong growth he aims to achieve through the tax cuts enacted late previous year, a pullback of regulations and a rewriting of trade deals to better serve the United States.

"He could put in some new ideas or comment on current discussions and that would move the market, but I would say the odds of that is less than 50/50", said Jim Vogel, an interest rate strategist at FTN Financial in Memphis, Tennessee.

An inverted yield curve, when short-term borrowing costs rise above long-term ones, has preceded almost every US recession in recent memory. Five of those rate hikes, including two this year, have occurred with Trump in the White House.

In June, the Fed predicted a total of four hikes this year, up from an earlier estimate of three.

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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 nor holding it back.