Stocks Rise to Record, Dollar Falls on Dovish Fed: Markets Wrap

Traders work on the floor of the NYSE in New York

"My colleagues and I", the Fed chairman said in his speech, "are carefully monitoring incoming data, and we are setting policy to do what monetary policy can do to support continued growth, a strong labour market, and inflation near two per cent".

A strong economy and robust corporate results have supported investment appetite for equities. "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".

He said "one overwhelmingly important lesson for monetary policymakers: Anchoring longer-term inflation expectations is a vital precondition for reaching all other monetary policy goals".

U.S. Federal Reserve Chairman Jerome Powell said on August 24 that the economy is strong and there was no clear sign of inflation moving above the central bank's 2 percent target.

Markets are also bracing for a speech by U.S. Federal Reserve Chairman Jerome Powell later in the day that could bring a dovish surprise.

The dollar weakened and U.S. stocks rose following his remarks, with the Nasdaq and benchmark index, the S&P 500, hitting record highs.

"I'm not thrilled with his raising of interest rates, no". The president previously upbraided Powell and the Fed via Twitter for raising rates while the economy is humming along. "To return to the nautical metaphor, the FOMC has been navigating between the shoals of overheating and premature tightening with only a hazy view of what seem to be shifting navigational guides", Powell said.

Powell's remarks at Jackson Hole affirmed the Fed's plan to raise rates at least to neutral levels - a level which is neither expansionary nor contractionary.




Powell is due to give a speech later in the day at the Jackson Hole, Wyoming, conference of central bankers.

U.S. stocks kicked off Friday's trading session on solid footing as investors digested fresh economic data and interpreted a speech by Federal Reserve chairman Jerome Powell.

Where he stands on the pace of interest rate hikes will be scrutinized after minutes from the Fed's most recent policy meeting indicated the central bank would tighten monetary policy soon.

"He is crystal clear here that while he understands that all those economic principals are important, he is not going to let current estimates of those things be the dominant driver of interest rates", said Robert Martin, executive director at UBS Securities LLC and a former Fed board staff economist.

The low-level negotiations were the first since the world's top economies began exchanging tit-for-tat tariffs in July and came as the two sides imposed measures on billions of dollars more in goods.

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.

The president has also repeatedly hammered away at Fed policy for not supporting faster economic growth but he went even further this week when he declined to confirm his support for the central bank's independence, something that has the potential to worry financial markets. The protesters wore green T-shirts reading "The Fed wants more of us unemployed".

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