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  HOME | Business & Economy (Click here for more)

Fed Chief Powell Points to More Rate Hikes due to US Economy’s Strength

WASHINGTON – US Federal Reserve Chairman Jerome Powell on Tuesday painted an encouraging picture during his appearance before Congress, emphasizing the “solid” nature of the US economy, spurred by fiscal stimulus and firmness in exports, and he reiterated his commitment to a “gradual” monetary adjustment.

“Some of the headwinds the U.S. economy faced in previous years have turned into tailwinds: In particular, fiscal policy has become more stimulative and foreign demand for U.S. exports is on a firmer trajectory,” Powell told lawmakers on the House Financial Service Committee.

This was Powell’s first appearance before Congress since he replaced Janet Yellen as Fed chairman in early February.

He said that his own personal view of US economic prospects had strengthened since the last Fed Open Market Committee meeting in December.

Powell, who has been a member of the Fed Board of Governors since 2012, commented favorably on the tax reform plan recently approved by Congress and pushed by President Donald Trump, which includes noteworthy tax cuts for businesses and, to a lesser extent, for workers.

Regarding the evolution of interest rates, currently in the 1.25-1.5 percent range, Powell said that he intends to carry out a “gradual” upward adjustment of rates, in accord with the steps taken by Yellen during her tenure as Fed chief.

“These interest rate and balance sheet actions reflect the Committee’s view that gradually reducing monetary policy accommodation will sustain a strong labor market while fostering a return of inflation to 2 percent,” Powell said.

He also commented on the recent turbulence in the world financial markets, with Wall Street registering an abrupt 5 percent drop two weeks ago that sparked concerns about the possibility of a new financial bubble that might be on the verge of bursting.

“At this point, we do not see these developments as weighing heavily on the outlook for economic activity, the labor market and inflation,” said the 65-year-old Powell.

“Indeed, the economic outlook remains strong,” he added.

Powell delivered his report several weeks before the FOMC – which directs US monetary policy – is scheduled to meet again on March 20-21.

After that meeting, the US central bank will release its new macroeconomic forecasts for 2018, with the outlook last December being for GDP growth of 2.5 percent and an unemployment rate below 4 percent, a level considered to constitute “full employment.”

Given the favorable US economic data, analysts believe that the Fed will hike interest rates at least three times this year with an eye toward keeping inflation in check.

Although he took questions from lawmakers, Powell refused to provide specific forecasts for rate hikes on Tuesday, saying only that Fed monetary policy decisions would be governed by the data collected over the coming months.

 

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