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Fed interest rate hikes appear on course after chair Jay Powell's address

Economic report

Federal Reserve Chairman Jerome Powell seemed to brush off recent complaints from President Donald Trump about the pace of interest-rate increases, signaling in a speech on Friday that he expects the Fed to continue raising interest rates gradually if the U.S. economic expansion remains strong.

Speaking to an annual conference of central bankers in Jackson Hole, Wyoming, the Fed chairman said the central bank recognizes that the path of inflation is so uncertain that it generally needs to strike a balance between being supportive of growth and being restrictive. This gradual approach is the wisest policy for the Fed as it tries to navigate between the risks of raising rates too fast, thus "needlessly shortening the expansion," and moving too slowly and risking an overheated economy.

But Powell sounded bullish on the economic expansion.

"With solid household and business confidence, healthy levels of job creation, rising incomes, and fiscal stimulus arriving, there is good reason to expect that this strong performance will continue," he said.

"Overall, his speech did not signal any change in policy," Michael Pearce, senior U.S. economist at Capital Economics, wrote in a note.

"He did, however, emphasise that if the economic outlook changed markedly, the Fed is ready to change direction too, saying he is "confident" the FOMC would do "whatever it takes" should crisis again threaten. Our view is that economic growth will slow sharply next year, which will force the FOMC to confront that dilemma sooner than they expect," Pearce wrote.

The Associated Press contributed reporting.

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