European Shares Seen Flat On Escalating US-China Trade Spat

Fed chairman defends interest rate hikes as Trump’s attacks show no sign of working

Trump's latest attacks, delivered in an interview this week, meant politics cast a shadow over the highly anticipated speech, the highlight of the annual gathering of global central bankers in Jackson Hole, Wyoming, an idyllic setting in the American West for serious discussions on how to manage the economy.

Kansas City Federal Reserve Bank President Esther George said she believes that two more rate increases this year "could be appropriate" in light of the strong economy.

Federal Reserve chair Jerome Powell sees plenty of reasons the US economy's strong run will continue.

The U.S. Federal Reserve has already hiked twice in 2018 and is on the path to lift interest rates two more times before the end of the year. The Fed is widely expected to resume doing so at its next policy meeting late next month.

Although Trump appointed Powell, he criticised the Fed chairman for not doing enough to support trade negotiations around the world by setting monetary policy to support the U.S. economy.

There are risks to "moving too fast and needlessly shortening the expansion, versus moving too slowly and risking a destabilizing overheating" that could spark inflation, Powell said Friday.

"Any comments on current Fed policy will draw even more than the usual attention given recent and unprecedented criticism of the Fed by President Trump", Larry Hatheway, chief economist at GAM Investments, told Bloomberg News.

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".

Trump ‘not thrilled’ with Fed chairman over interest rate hikes
The Fed has been gradually raising interest rates since the end of 2015, with five hikes coming under Trump. It followed reports earlier in the day that Trump had criticised Powell at a private GOP fundraiser.

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. Two top Fed officials made clear Thursday that Trump's criticism won't affect their decisions on whether to continue raising rates.

Market sentiment moved in a positive direction on the optimistic economic news that weekly jobless claims fell to 210,000 in July and approached a low not seen in forty-nine years.

Speaking just days after President Donald Trump criticized the US central bank's rate hikes, Powell used an annual research symposium here to "explain today why my colleagues and I believe that this gradual process.remains appropriate".

Mr. Powell delivers his speech, titled "Monetary Policy in a Changing Economy", at 10 a.m. EDT.

Inflation, meanwhile, is near the Fed's 2 percent target range. "Inflation has moved up and is now near the Federal Open Market Committee's (FOMC) objective of 2 percent after running generally below that level for six years".

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.

Trump believes that rate hikes would hinder economic growth and put a cap on the bullish USA stock market.

Lew Alexander, an economist at Nomura, said earlier this week that, "Powell, a lawyer by training, is not known for breaking new conceptual ground on monetary policy or macroeconomics". Trump also criticized Powell - who was selected by the president to replace Janet Yellen as Fed chair - saying he was "not thrilled" with him.

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