Powell expects rate hikes amid bullish outlook on economy

WASHINGTON Federal Reserve chairman Jerome Powell gave lawmakers an upbeat assessment of the economy and expects to keep raising interest rates gradually. He said solid job gains and strong economic growth has enabled the Fed to dial back the “extra boost” it implemented during the financial crisis and recession.

In his semi-annual testimony to Congress Tuesday, Powell described the Fed’s process for slowly raising interest rates as “running smoothly.” He said the Fed forecasts the job market to remain strong and inflation to stay near two per cent over the next several years.

Powell cited trade and tax legislation as among the uncertainties that could alter his forecast.

It is “difficult to predict the ultimate outcome of current discussions over trade policy as well as the size and timing of the economic effects of the recent changes in fiscal policy,” he said.

The Fed has lifted its key policy rate twice this year. It signalled last month that it expected two more hikes this year.

“Our policies reflect the strong performance of the economy and are intended to help make sure that this trend continues,” Powell said in his prepared testimony.

After the 2008 financial crisis, the Fed kept its key policy rate at a record low near zero for seven years before starting a slow process of boosting rates in December 2015. This year’s rate hikes in March and June have left the Fed’s key rate in a range of 1.75 per cent to two per cent. The unemployment rate at four per cent is near a two-decade low.