Southeast Asia stocks fall ahead of Powell speech

Aug 27, 2018, 05:32
Southeast Asia stocks fall ahead of Powell speech

FED TALK: Traders were looking ahead to Friday's gathering of central bankers, including Federal Reserve Chairman Jerome Powell, in Jackson Hole, an annual symposium that has often generated market-moving news. But it also criticizes preferences cited by some Fed officials who have urged moving more slowly to raise interest rates, seeking more evidence of a rebound in inflation before doing so.

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 president has complained that the Fed's tightening of credit could threaten the continued strong growth he aims to achieve through the tax cuts enacted late a year ago, a pullback of regulations and a rewriting of trade deals to better serve the United States. Real time estimates of the natural rate of unemployment were now too high, so a mechanistic approach to monetary policy would have recommended a much tighter stance in the 1990s.

Markets are pricing in two more rate hikes this year, and one next year, less than the three rate hikes the Fed now forecasts for 2019.

While his remarks will be pored over for a clue about the bank's policy plans, they will attract more interest after Donald Trump's criticism this week of its recent interest rate hikes and accusations it is not backing his economic agenda.

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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 usa economy. -China trade conflict and the Fed's latest policy meeting minutes which signaled a September interest rate rise. Instead, Powell defended the Fed's policy on the grounds that it would not undermine continued growth.

"Powell's speech is likely to reiterate the Fed will keep its tightening agenda until the US economy shows slowing tendencies or the market forces the Fed to rethink", said Hans Redeker, global head of currency strategy at Morgan Stanley in London. That echoed a phrase that was used to describe the extraordinary steps the Fed and other central banks took after the 2008 financial crisis plunged the USA and global economies into deep recessions. Most people who want jobs can find them.

"I will explain today why the committee's consensus view is that this gradual process of normalization remains appropriate", Powell said of the rate-setting Federal Open Market Committee.

In a separate interview with CNBC, Cleveland Fed President Loretta Mester took the opposite view, saying she still thinks raising rates gradually is appropriate.

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"He could put in some new ideas or comment on current discussions and that would move the market, but I would say the odds of that is less than 50/50", said Jim Vogel, an interest rate strategist at FTN Financial in Memphis, Tennessee.

Trump expected Powell to be a "cheap-money" Fed chair, according to a Bloomberg report on the event.

The yield curve between two-year and 10-year notes has flattened to 19 basis points, from 33 basis points at the beginning of August and 83 basis points in February, as investors price rate hikes into shorter-dated notes.

Powell said that if the economic outlook markedly changed, the Fed would be prepared to change course.

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