Fed policymakers see rate hikes on the horizon

Fed chair Jerome Powell’s highly anticipated speech: what to expect

Powell, in a speech Friday kicking off the Kansas City Fed's annual economic forum in Jackson Hole, Wyoming, described the economy as "strong" and said there were few signs that the economy risked overheating.

Powell said in his Jackson Hole speech: "The economy is strong".

"For equities, the key point will be whether Powell indicates that the Fed is poised to hike rates two more times this year".

Powell focused his remarks in part on the difficulty the Fed faces in setting interest-rate policies at a time when the economy seems to be undergoing changes that challenge long-standing beliefs of how low unemployment can fall before it ignites inflation pressures.

Powell's comments were not a direct response to Trump's criticism that he is "not thrilled" with the Fed raising rates as he is trying to stimulate economic growth.

Markets are pricing in two more rate hikes this year, and one next year, less than the three rate hikes the Fed now forecasts for 2019.

Asked if a rate hike at the Fed's next policy meeting in September could invert the yield curve, Bullard said, "That's a possibility, maybe, depending on how hawkish it was read by the market".

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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.

"Treasuries have returned to the lower end of their recent (yield) ranges and I think that speaks to the heavy short positioning, suggesting that it's easier for the market to rally than it is to sell off", said Jonathan Cohn, an interest rate strategist at Credit Suisse in NY. But, if the bank moves too slow, the economy could overheat. 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.

"Participants observed that if a large-scale and prolonged dispute over trade policies developed, there would likely be adverse effects on business sentiment, investment spending, and employment", said the minutes of the Fed's July 31-August 1 meeting released on Wednesday.

Fed Chairman Jerome Powell is due to speak at the conference and is widely expected to also signal more rate hikes ahead.

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. Inflation is near our 2% objective, and most people who want a job are finding one ...

Mr. Powell delivers his speech, titled "Monetary Policy in a Changing Economy", at 10 a.m. EDT. While the trade conflict between Washington and Beijing darkens the economic outlook, the supply versus demand position in oil markets remains relatively tight -especially because of the looming USA sanctions against Iran. Five of those rate hikes, including two this year, have occurred with Trump in the White House. The government also said Friday it was removing limits on foreign ownership of its banks.

Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said Trump can decide what to comment on and is not anxious that the criticism will affect the central bank's monetary policy.

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