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Dollar falls as Powell sees little risk of inflation overheating

New York

THE dollar fell on Friday after Federal Reserve chair Jerome Powell said he sees little risk that inflation is poised to accelerate beyond the central bank's target but that steady interest rate hikes are the best way to protect the US economic recovery for now.

The dollar was also hit by moves by the People's Bank of China to stabilise the yuan, which had been under broad pressure amid trade tensions between the United States and China.

Mr Powell's statement that rate hikes are keeping job growth strong and inflation under control was a high-profile endorsement of the central bank's current policy approach after US President Donald Trump criticised the pace of rate hikes this week.

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Mr Powell's remarks about inflation were seen by some as a signal that the Fed has little need to push rates beyond the bank's perceived level of the neutral rate, or where the federal funds rate reaches an equilibrium where it neither stimulates nor suppresses economic growth. Policymakers' latest assessment of that rate was around 2.9 per cent, roughly 1 percentage point above the current level of between 1.75 and 2.00 per cent.

The dollar index, which measures the greenback against a basket of six other major currencies, fell a quarter of a per cent from its position at 10:00 am EDT when Mr Powell's remarks were made public. It was last at 95.145, down 0.64 per cent.

In his remarks, Mr Powell discussed the 1 percentage point decline in Fed policymakers' assessment of the natural rate of unemployment and the neutral interest rate since the US central bank began raising rates in December 2015.

"These changing assessments have big implications," said Mr Powell, including the idea that the Fed's policy had been "less accommodative than thought at the beginning of normalisation." REUTERS