Investors are focused on the level of optimism Powell expresses about US economic growth: The stronger his optimism, the more likely the USA central bank is to become more aggressive in raising the interest rate to restrain inflation. "My personal outlook for the economy has strengthened since December", he said.
"We still expect the Fed to continue to hike interest rates, as economic growth is doing quite well in the U.S. and fiscal stimulus should help to boost growth further", said Capital Economics analyst Simona Gambarini.
Traders of federal funds futures trimmed bets on a fourth rate increase this year after Trump's announcement. "In gauging the appropriate path for monetary policy over the next few years, the FOMC will continue to strike a balance between avoiding an overheated economy and bringing PCE [personal consumption expenditures] price inflation to 2 per cent on a sustained basis".
Stocks, which benefit from low rates, fell sharply Tuesday, while interest rates rose in the bond market. "It will be interesting to see if he dials back at all, considering the market reaction".
The continued suppression of wages has been at the very centre of the profit accumulation process for major U.S. corporations, and the Fed is particularly sensitive to any signs that a fall in unemployment will lift labour costs.
In the last session, shares saw early gains slide away, finishing up a losing month for stocks with a down day.
The nervousness on the financial markets may have been compounded by news that striking teachers in West Virginia were denouncing a sellout agreement announced Tuesday by teachers' union leaders and planning to defy their call for a return to work on Thursday. It noted that the labour market had continued to strengthen since the middle of previous year, with a fall in the official jobless rate from 4.3 to 4.1 percent and other measures of labour utilization suggesting that "the labour market has tightened since last summer".
The current framework "is working, the market understands it", Powell said.
In an article headlined "Powell's first problem: Taming the job market", the Wall Street Journal drew attention to these passages in the Fed report.More news: Tokyo returns with Summer Games with something new to prove
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The new Fed Chief replied: "It seems that the markets were generally orderly throughout nearly all of that time".
He said the Fed was in a "process of discovering" how low unemployment could fall before inflation took hold.
"Gradual" has been the operative word used by the central bank since it began raising rates under Powell's predecessor, Janet Yellen, in late 2015.
He added that despite high asset prices, the financial stability risks were at most modest. The last time was before the 2008 financial crisis.
"Wages should increase at a faster pace as well, " he said, adding that the FOMC continued to view the shortfall in inflation previous year "as likely reflecting transitory influences that we do not expect will repeat".
"Powell more confident on growth, putting 2018 dots in play", is how JP Morgan's Michael Feroli summed up the day, referring to the quarterly "dot plot" of projected interest rates that Fed policymakers submit.
These problems are compounded by the fact that since the 2008 crisis, the Fed's holdings of financial assets have expanded by almost five-fold, from $800 billion to more than $4 trillion. In fact, the month was the worst for both the Dow and S&P since January 2016.
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