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. "If the strong growth in income and jobs continues, further gradual increases in the target range for the federal funds rate will likely be appropriate".
Where he stands on the pace of interest rate hikes will be scrutinized after minutes from the Fed'smost recent policy meeting indicated the central bank would tighten monetary policy soon. 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".
"Global risk sentiment remains somewhat jittery ahead of Fed Chair Powell's speech with US-Sino trade talks failing to yield any immediate progress", strategists at OCBC Bank wrote.
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.
It came after U.S. PresidentDonald Trump on Monday criticized rate increases, saying the Fed Chairman should do more to help him to boost the economy.
However, some Fed officials anxious that an escalation in current trade disputes could force the central bank to rethink its interest rate hike plans, according to the minutes of the Fed's latest monetary policy meeting.
The American consumer is resurging; economic growth is being maintained at an annualized rate of more than 4%; unemployment is around the lows of the last 50 years; and fiscal policy is ready to provide additional momentum during the second half of the year.
Some economists believe the Fed is moving too slowly given the low unemployment in the USA, which could increase the bargaining power of workers to demand higher wages, stoking inflation.
Further, Powell believes the Fed policy has gradually moved closer to neutral, meaning the tightening cycle is nearing its end. Next month, the Fed is widely expected to resume raising rates.
The Fed has sought to strike a delicate balance as it wants to raise interest rates steadily to keep the economy from overheating, but that increasing rates too quickly could spark a recession in the world's biggest economy.
Based on the futures market, investors are nearly certain Fed policymakers will raise the benchmark interest rate to a range of 2 percent to 2.25 percent at its next meeting in late September, which would be the highest interest rates in a decade but not high by historical standards. While the trade conflict between Washington and Beijing darkens the economic outlook, the supply versus demand position in oil markets remains relatively tight -especially because of the looming US sanctions against Iran. He argued that gradual interest rate hikes would do less potential harm to the economy than basing policy on changing assumptions about the relationship between inflation and unemployment.
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".
To emphasize the Fed's attention to inflation, Powell borrowed a line that European Central Bank President Mario Draghi used in July 2012 to preserve the euro.
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