Investors breathed a sigh of relief after the head of the US Federal Reserve made dovish comments about the rate of inflation in the US, which will only require gradual rate hikes.
There had been concern that Jerome Powell would lay out an accelerated series of rate hikes despite recent wobbles in emerging market economies.
The risk of surge in inflation remained low, Mr Powell said. However, he pointed out that gradual rate hikes were the best way to maintain high employment levels and price stability in the US.
The dollar weakened and US stocks rose following his remarks, with the Nasdaq and benchmark index, the S&P 500, hitting record highs.
The Fed chairman walked a difficult tightrope with his speech to fellow central bankers in Jackson Hole, Wyoming. The US is experiencing rapid economic growth and a strong dollar at the same time as many emerging currencies battle rampant inflation.
However, the central banker’s speech and comments from Fed board members assuaged market fears that Mr Powell could repeat the mistakes of former Fed chair Alan Greenspan twenty years ago.
In 1998, Mr Greenspan told Congress that he was more concerned about rising inflation than the financial crisis brewing in emerging markets. A month later the Fed had to slash rates in a panicked u-turn when emerging market struggles triggered a global crisis.
Mr Powell made no direct mention of emerging markets but struck a calming note, echoing European Central Bank President Mario Draghi’s famous response to the eurozone crisis. “I am confident that the FOMC would resolutely 'do whatever it takes' should inflation expectations drift materially up or down or should crisis again threaten,” Mr Powell said.
The leading Fed rates stand at a range of 1.75 to 2pc with a 25bps hike expected this September, and a further rise predicted by the end of the year.
Dallas Fed president Robert Kaplan said that the currency crises in Turkey, South African and other emerging markets had not “led to contagion”.
“It’s so far contained but I’m watching that,” he added. He warned that the problems could spread and there was a risk of “spill over” to the US.
Mr Kaplan also made a thinly veiled attack on the White House's trade policy. He said US tariffs on steel imports would prevent the expansion of the US energy industry by making new pipeline more costly amid rising oil prices.
Andrew Hunter of Capital Economics said: “Fed officials’ concerns over trade policy appear to have grown." The central bank’s August minutes said: "All participants pointed to ongoing trade disagreements and proposed trade measures as an important source of uncertainty and risks."
However, Mr Powell avoided any mention of President Donald Trump’s recent criticism of Fed rate hikes. Earlier this week the President said that he was “not thrilled” by the prospect of higher interest rates.
Chief economist and rate setter at the Bank of England, Andy Haldane also spoke at the summit. He warned that the increasing dominance of large firms around the world was having a powerful but hard to understand influence on the global economy.
He said he thought it was likely that these huge companies exerted significant influence over wages and the prices of goods and that this had important implications for inflation.