Investors on alert for clues to Fed’s next moves
Chairman to address conference of bankers
WASHINGTON — Is financial turmoil in Turkey and other emerging economies at risk of spreading? Will America’s trade war with China derail the U.S. economy? Does the Federal Reserve have the means to fight the next recession?
And: Is Chairman Jerome Powell troubled by President Donald Trump’s public denunciation of the Fed’s interest rate hikes?
When Powell gives the keynote address Friday at an annual conference of central bankers in Jackson Hole, Wyoming, the world will be seeking any clues to his stance on those questions and how any of it might affect the Fed’s rate policy.
If Powell sounds confident that the economy won’t be unduly hurt by the Trump administration’s tariffs on imports or by a currency crisis in developing markets, investors probably would conclude that the Fed will keep raising rates, albeit only gradually.
But if Powell sounds 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.
Amid the splendor of the Grant Teton Mountains, the Fed chairman will speak to his fellow central bankers starting at 10 a.m. Eastern time. For Powell, six months into his post as Trump’s choice to lead the world’s most important central bank, Jackson Hole will provide his highest-profile platform to date and his first chance to respond publicly, if he wishes, to Trump’s recent criticism of the Fed’s rate hikes.
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 criticized the policymaking of the Fed, which by tradition has always functioned independently of the White House and free of political influence.
The Fed has been raising its benchmark lending rate after keeping it at a record low near zero for seven years to help the economy recover from the Great Recession. Having raised rates once in both 2015 and 2016, the Fed did so three times last year and twice this year. In June, its policymakers predicted a total of four rate increases this year, presumably one additional hike in September and one more in December.
The series of modest rate hikes is intended to prevent the economy from overheating and inflation from accelerating. But higher rates make borrowing costlier and can depress stock prices.
Some question whether Trump’s trade war and the financial crises in emerging nations might so endanger the U.S. economy that the Fed would have to slow or suspend its rate hikes or even consider cutting rates again.