Fed's Powell signals more hikes ahead if United States economy remains strong

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St. Louis Federal Reserve Bank President James Bullard on Friday raised new alarm bells over the USA central bank's plan to keep raising interest rates, warning that even one more rate hike could set the stage for recession. 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. 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.

"While the unemployment rate is below the [Federal Open Market] Committee's estimate of the longer-run natural rate, estimates of this rate are quite uncertain", he added.

The Federal Reserve should stop raising interest rates now because the economy is showing no signs of inflation surging and is expected to slow next year after the effects of fiscal stimulus wear off, St. Louis Fed President James Bullard said Friday.

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

"Because monetary policy acts with a lag, waiting for inflation to materialize is undesirable", the paper said. 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. Hawkish members of the Fed board have expressed fears that moving too slowly could risk rampant inflation, but more liberal officials see no need slow down the economy while prices stay mostly stable. The preliminary talks "look unlikely to yield too much in the way of progress as they enter a second day, with the USA president, given his current political difficulties, unlikely to want to concede any further ground", said CMC Markets analyst Michael Hewson. "Inflation is near our two per cent objective and most people who want a job are finding one".

Noting that the economy's "strong performance will continue" against a backdrop where there "does not seem to be elevated risk of overheating", Fed Chair Powell said that the "gradual process of normalization remains appropriate".

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MR JEROME POWELL, Fed chairman, on the central bank's approach to rates.

"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.

Powell cited former Fed Chairman Alan Greenspan's decision to not raise rates during the mid-1990s as unemployment decreased and growth expanded, but inflation stayed largely steady.

The agenda set by the Kansas City Fed for meetings in Wyoming, which began yesterday and ends today, does not focus on the complexities of short-term monetary policy. "If the strong growth in income and jobs continues, further gradual increases ... will likely be appropriate".

"He did, however, emphasise that if the economic outlook changed markedly, the Fed is ready to change direction too, saying he is "confident" the FOMC would do "whatever it takes" should crisis again threaten".