Fed Watchers Listen for Rate Hints in Powell Speech Friday

Federal Reserve Chairman Jerome Powell will not lack for urgent topics to address when he gives the keynote speech Friday to an annual gathering of global central bankers in Jackson Hole, Wyoming.

Fed watchers will be listening for anything Powell has to say about financial turmoil in emerging markets, the economic threats posed by the growing trade war launched by President Donald Trump, and Trump’s criticism of the Fed’s recent interest rate hikes.

Investors will especially want to hear whether Powell addresses the central question of whether any of those developments might lead the Fed to alter its plan to raise interest rates two more times this year and to keep raising them next year as well.

If Powell sounds confident that the economy won’t be unduly hurt by the administration’s tariffs on imports and the retaliatory tariffs they have provoked or by a currency crisis in developing markets, Fed watchers will likely conclude that the central bank will maintain a course of gradual rate hikes to reflect a robust economy.

But if Powell strikes a message of concern, it could be read as a sign that the Fed is considering slowing its hikes. A slower pace of rate increases would be intended to encourage continued borrowing and spending by companies and individuals to drive economic growth.

​Political pressure

Amid the grandeur of the Grant Teton Mountains, Powell will be the lead-off speaker at the conference, which has been sponsored for more than three decades by the Federal Reserve Bank of Kansas City.

It will be Powell’s first chance to respond publicly to Trump’s recent criticism, which critics say amounted to an intrusion on the Fed’s longstanding independence from political influence. Two top Fed officials made clear Thursday that Trump’s criticism won’t affect their decisions on whether to continue raising rates. The Fed is widely expected to resume doing so at its next policy meeting late next month.

“Our job at the Fed is to make decisions on monetary policy and supervision without regard to political considerations, and I’m confident we’ll continue to do that,” Robert Kaplan, head of the Fed’s Dallas regional bank, said in an interview with CNBC. Kaplan said he foresees three to four more rate hikes over the next nine to 12 months.

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.

“Expressions of angst about higher interest rates are not unique to this administration,” she said in a separate interview with CNBC.

This week, Trump complained in an interview with Reuters that he was “not thrilled” with Powell’s Fed for raising rates. It marked the second time this summer that Trump had publicly criticized the policymaking of the Fed.

That broke a tradition that the White House should refrain from attacks on the Fed because such criticism can shake the confidence of financial markets and that the Fed is committed to keeping inflation under control without regard to political considerations.

Seven interest rate hikes

The Fed has raised its key policy rate seven times since late 2015 after seven years of keeping the rate at a record low near zero to help the economy recovery from the Great Recession. Five of those rate hikes, including two this year, have occurred with Trump in the White House. In June, the Fed boosted its projection for expected hikes this year from three to four.

The Fed’s policy rate stands in a range of 1.75 percent to 2 percent. The rate hikes are intended to prevent the economy from overheating and inflation from accelerating. But higher rates make borrowing costlier and can depress stock prices. Trump has complained that the Fed’s efforts are hampering his attempts to boost growth with his $1.5 trillion tax cut, deregulation and tougher enforcement of trade agreements.

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