S&P 500, Nasdaq end at records after Fed speech

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Federal Reserve Chairman Jerome Powell is signalling that he expects the Fed to continue gradually raising interest rates if the USA economic expansion remains strong.

Federal Reserve Chairman Jerome Powell will not lack for urgent topics to address when he gives the keynote speech Friday to an annual gathering of global central bankers in Jackson Hole, Wyoming.

"Based on what I see today, I think two more rate hikes could be appropriate" this year, as the Fed aims to move interest rates to a neutral setting of about 2.5 per cent to three per cent, she told Bloomberg TV.

That is the difference between short-term interest rates and long-term rates.

But speaking publicly for the first time since Trump said last month that he was "not thrilled" with recent rate increases, Powell indicated the Fed plans to continue its efforts to normalize interest rates that had been kept historically low in the recession that began in 2008.

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While it might seem odd that there is debate over whether a 2 percent interest rate is too high, it should be remembered that the key rate spent years at zero percent following the financial crisis. The rate is now at a range of 1.75 percent to 2 percent, well above the near-zero level the Fed kept it at from late 2008 to 2015 but still historically low. "The Australian economy is okay regardless of who is prime minister", said Yamamoto.

ANALYST TAKE: "This year's meeting is more about market structure than current monetary policy and so prepare for a non-event", said Neil Wilson, chief markets analyst at Markets.com. That echoed a phrase that was used to describe the extraordinary steps the Fed and other central banks took after the 2008 financial crisis plunged the US and global economies into deep recessions. In June, most Fed officials projected the natural rate of unemployment was between 4.1% and 4.7%. 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 previous year, a pullback of regulations and a rewriting of trade deals to better serve the United States.

The Fed under Chair Jerome Powell has been raising rates and is expected to do so again when policymakers meet next month.

Economists said Powell's remarks Friday echoed the message he has sent since succeeding Janet Yellen as Fed leader in February. "Inflation has moved up and is now near the Federal Open Market Committee's (FOMC) objective of 2 percent after running generally below that level for six years".

But, as he did with rate increases, he signaled that Fed officials would do what they think is right for the economy regardless of political pressure.