Powell says gradual hikes likely needed if economy stays strong

So far this year the rupee has weakened 8.9% while foreign investors have sold $493.40 million and $5.57 billion in equity and debt markets respectively

Speaking to an annual conference of central bankers in Jackson Hole, Wyoming, the Fed chairman says the central bank recognizes that the path of inflation is so uncertain that it generally needs to strike a balance between being supportive of growth and being restrictive.

Kansas City Federal Reserve Bank President Esther George said she believes that two more rate increases this year "could be appropriate" in light of the strong economy.

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

Currently, Fed funds futures are pricing in a 95% chance of a 25-bps rate hike in September, and a 64% chance of another hike in December (bringing the total to four 25-bps hikes in 2018).

Powell cited former Fed Chairman Alan Greenspan's decision to not raise rates during the mid-1990s as unemployment decreased and growth expanded, but inflation stayed largely steady.

The Jackson Hole speech follows closely behind President Trump's criticism of the Fed for its continued tightening of USA monetary policy ever since Powell, who was nominated for the role by Trump, took the helm in February.

"While inflation has recently moved up near 2 percent, we have seen no clear sign of an acceleration above 2 percent, and there does not seem to be an elevated risk of overheating".

Powell said that the Fed would continue to raise interest rates as the economy expands and unemployment lingers at near-record lows, resisting calls to maintain easy money policies while inflation remains stable. The Fed has raised the rate seven times since late 2015 and is projected to raise it again two more times this year.

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Increasing consensus on the need to continue raising US interest rates was on display at the start of the global central bankers meeting, as the longstanding distinction between so-called policy hawks, centrists and doves blurs in the face of falling unemployment.

Speaking just days after President Donald Trump criticised the United States central bank's rate hikes, Mr Powell used an annual research symposium here to "explain today why my colleagues and I believe that this gradual process. remains appropriate". Policymakers' latest assessment of that rate was around 2.9 percent, roughly 1 percentage point above the current level of between 1.75 and 2.00 percent.

St. Louis Fed President James Bullard said earlier on Friday he'd prefer a pause on the rate hikes, given that the economic stimulus from the Trump administration's tax cuts and a budget agreement that boosts government spending will likely fade next year.

Analysts said growing USA political uncertainty, reinforced by the criminal convictions of two of Trump's ex-advisors this week, was keeping the dollar under pressure, despite the United States embarking on greater monetary tightening than elsewhere.

However, some Fed officials anxious that an escalation in current trade disputes could force the central bank to rethink its interest rate hike plans, according to the minutes of the Fed's latest monetary policy meeting.

Other economists have argued, however, that the Fed's biggest mistake has been to have a policy that is too flexible and allow loans to lose control. While the trade conflict between Washington and Beijing darkens the economic outlook, the supply versus demand position in oil markets remains relatively tight -especially because of the looming USA sanctions against Iran. "I'm not thrilled", Trump said in an interview with Reuters.

"W$3 hen you are uncertain about the effects of your actions, you should move conservatively", Powell said.

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