USA yield curve flattest since 2007 as Fed’s…

Powell signals more hikes ahead if US economy stays strong

Dallas Federal Reserve Bank President Robert Kaplan said he expected three to four rate hikes over the next nine to 12 months.

Asked if a rate hike at the Fed's next policy meeting in September could invert the yield curve, Bullard said, "That's a possibility, maybe, depending on how hawkish it was read by the market".

Powell adds that while annual inflation has risen to near the Fed's 2 percent target rate, it doesn't seem likely to accelerate above that point. He further added the US central bank should do more to help him to boost the economy.

Powell did not drop any bombshells nor did he mention Trump or provide much in the way of diverting from a path of gradual interest rate hikes.

Investors will especially want to hear whether Powell addresses the central question of whether any of those developments might lead the Fed to alter its plan to raise interest rates two more times this year and to keep raising them next year as well.

Increasing consensus at the Federal Reserve on the need to continue raising United States interest rates was on display at the start of a global central bankers meeting here, as the longstanding distinction between so-called policy hawks, centrists and doves blurs in the face of falling unemployment. In June, most Fed officials projected the natural rate of unemployment was between 4.1% and 4.7%.

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The Treasury yield curve reached its flattest level since 2007 on Friday as comments by Federal Reserve Chairman Jerome Powell affirmed expectations that the US central bank will continue raising rates.

The Nasdaq rose 0.9 per cent to 7,945.98, also a fresh record, while the Dow Jones Industrial Average gained 0.5 per cent to 25,790.35, about 825 points below its all-time high.

Earlier this week, U.S. President Donald Trump reiterated his criticism of the Fed's monetary policy, saying he was "not thrilled" with the Fed for raising rates. 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 past year, a pullback of regulations and a rewriting of trade deals to better serve the United States. Pearce said he saw Powell's comments as signalling that the central bank will continue raising rates gradually over the next year. Trump was once again scolded by the press for criticizing the Fed a second time.

Powell's remarks about inflation were seen by some as a sign that the Fed had little need to push rates above their perceived neutral rate, a level of equilibrium for economic growth. Most Fed watchers foresee two more hikes this year - next month and then in December.

The Fed's overnight lending rate is now in a range of 1.75 per cent to 2.00 per cent.

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