US Fed chair ig­nores Trump crit­i­cism, will keep hik­ing rates... for now

Jerome Pow­ell tells Jack­son Hole cen­tral bankers’ meet­ing he will do ‘what­ever it takes’ in the event of a cri­sis

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Ad­dress­ing the an­nual sum­mit of cen­tral bankers at Jack­son Hole, Wy­oming, the chair­man of the US Fed­eral Re­serve Jerome Pow­ell seems in no mood to bow to pres­sure from pres­i­dent Don­ald Trump on in­ter­est rates.

Trump had been pub­licly crit­i­cal of Pow­ell and his col­leagues for the cur­rent pace of rate hikes which have risen steadily since the end of 2015. He wants looser mone­tary pol­icy or lower rates to help sup­port the econ­omy and limit the surge in the dol­lar.

Jack­son Hole has be­come an in­creas­ingly im­por­tant date for in­vestors’ di­aries in re­cent years thanks to a se­ries of set piece an­nounce­ments.

For now, Pow­ell is com­mit­ted to a course of grad­ual rate in­creases against the back­drop of a strong US econ­omy. How­ever, Pow­ell did leave the door open for this ap­proach to change ac­cord­ing to the out­look, es­sen­tially promis­ing to do ‘what­ever it takes’ should an­other eco­nomic cri­sis loom.

De­lib­er­ate or not, this has echoes of Euro­pean Cen­tral Bank chief Mario Draghi’s pledge in July 2012 to do ‘what­ever it takes’ to pre­serve the euro – help­ing to re­store mar­ket calm in the wake of Europe’s sov­er­eign debt cri­sis.

Con­sul­tant Cap­i­tal Eco­nom­ics reck­ons Pow­ell may have to shift course in the rel­a­tive short-term. ‘Our view is that eco­nomic growth will slow sharply next year, which will force the FOMC (Fed­eral Open Mar­ket Com­mit­tee) to con­front that dilemma sooner than they ex­pect.’

This helps to ex­plain why the dol­lar hit a four-week low in the wake of the speech. An­other fac­tor be­hind weak­ness in the US cur­rency was a break­through on trade talks with Mex­ico and pos­i­tive noises on sim­i­lar talks with Canada.

The White House has been crit­i­cal of the ex­ist­ing North Amer­i­can free trade agree­ment and had threat­ened to pull out.

As the dol­lar is of­ten per­ceived as a safe haven, the re­cent progress on this front saw traders un­wind some of their in­ter­est in the cur­rency. In turn this re­duced some of the pres­sure on emerg­ing markets – par­tic­u­larly those coun­tries with lots of dol­lar­de­nom­i­nated debt. (TS)

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