DXY Index Threatens Key Break after Powell’s Jackson Hole Speech

DXY Index Threatens Key Break after Powell’s Jackson Hole Speech

DXY Index Threatens Key Break after Powell’s Jackson Hole Speech

The Fed has raised the rate seven times since late 2015 and is projected to raise it again two more times this year.

The dollar weakened on Monday after Trump said he was "not thrilled" with Fed Chairman Jerome Powell's rate hikes and that the US central bank should do more to help him to boost the economy.

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 that the Fed is committed to keeping inflation under control without regard to political considerations. The market is already pricing in two United States rate hikes in 2018, and the somewhat dovish remarks from Powell did not add support to the USA dollar.

The Fed seems to be "doing as good a job as they cannot to overshoot" the tightening of monetary policy, said David Levy of Republic Wealth Advisors.

If hikes were to undermine growth, Powell indicated the Fed would change policy.

St. Louis Fed President James Bullard said earlier on Friday he'd prefer a pause on the rate hikes, given that the economic stimulus from the Trump administration's tax cuts and a budget agreement that boosts government spending will likely fade next year. The chairman reminded his audience of central bankers and economists that if the Fed stubbornly tried to defend a previous estimate for full employment - a term economists refer to as U-star - the cost would be 1.6 million jobs. As a result, the Fed's path of gradual rate hikes was appropriate and "there does not seem to be an elevated risk of overheating".

The president has also repeatedly hammered away at Fed policy for not supporting faster economic growth but he went even further this week when he declined to confirm his support for the central bank's independence, something that has the potential to worry financial markets.

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"I will speak for myself but I think this is true around the table: We are trying to do things that are going to extend the economic expansion as much as possible", Robert Kaplan, president of the Dallas Fed, told Reuters on Thursday on the sidelines of the conference.

Powell's remarks at Jackson Hole affirmed the Fed's plan to raise rates at least to neutral levels - a level which is neither expansionary nor contractionary. Most Fed watchers foresee two more hikes this year - next month and then in December.

While Trump has been critical of the Fed, many on Wall Street and in the wider business community are supportive of his leadership of the central bank and his decisions on interest rates.

The Fed's key rate is in a range of 1.75 percent to 2 percent and officials have pegged the neutral rate at 2.9 percent.

Powell said in his Jackson Hole speech: "The economy is strong". Powell defended the approach, noting "when unsure of the potency of a medicine, start with a somewhat smaller dose".

After the June rate hike, the Fed's policy rate now stands in a range of 1.75 percent to 2 percent.

"The Fed´s gradually removing accommodation, meanwhile inflation remains relatively subdued, so that puts a clear pivot into the curve", said Blake Gwinn, an interest rate strategist at NatWest Markets in Stamford, Connecticut.

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