Pow­ell: Out­look strong, sig­nal­ing rate hikes

Chattanooga Times Free Press - - BUSINESS - BY MARTIN CRUTSINGER

WASH­ING­TON — Fed­eral Re­serve Chair­man Jerome Pow­ell told Congress Tues­day that the out­look for the U.S. econ­omy “re­mains strong” de­spite the re­cent stock mar­ket tur­bu­lence, keep­ing the cen­tral bank on track to grad­u­ally raise in­ter­est rates.

Mak­ing his first pub­lic com­ments as leader of the na­tion’s cen­tral bank, Pow­ell de­picted an econ­omy gain­ing strength and stressed that he in­tended to fol­low the ap­proach to in­ter­est rates set by his pre­de­ces­sor, Janet Yellen. The Fed boosted its bench­mark rate three times last year and has sig­naled that it ex­pects to raise rates an­other three times in 2018.

In his state­ment, Pow­ell praised Yellen for the im­por­tant con­tri­bu­tions she made dur­ing her four years as the first woman to lead the Fed. He said the two had worked to­gether to en­sure “a smooth lead­er­ship tran­si­tion and pro­vide for con­ti­nu­ity in mon­e­tary pol­icy.”

Re­fer­ring to the wild swings in the stock mar­ket that oc­curred ear­lier this month, Pow­ell said the Fed does “not see these de­vel­op­ments as weigh­ing heav­ily on the out­look for eco­nomic ac­tiv­ity, the la­bor mar­ket and in­fla­tion.”

Pow­ell, who took of­fice on Feb. 5, was tapped last Novem­ber as the new Fed leader af­ter Pres­i­dent Don­ald Trump de­cided against of­fer­ing Yellen a sec­ond term. Pow­ell, a Repub­li­can, has been on the Fed’s seven-mem­ber board since 2012.

The Fed has raised its pol­icy rate by a quar­ter-point five times start­ing De­cem­ber 2015. Be­fore then, it had kept its pol­icy rate at a record low near zero for seven years in an ef­fort to help the coun­try re­cover from the deep­est re­ces­sion since the 1930s. Even with the re­cent hikes, the rate re­mains at a still-low 1.25 per­cent to 1.50 per­cent. But var­i­ous mar­ket rates, in­clud­ing home mort­gage rates, have be­gun ris­ing in an­tic­i­pa­tion of fur­ther Fed rate in­creases.

Many econ­o­mists be­lieve the Fed, which last raised rates in De­cem­ber, will hike again at its next meet­ing in March and some an­a­lysts think the Fed could hike more than three times this year, de­pend­ing on what in­fla­tion does.

In­vestors have be­gun to worry that the Fed might ac­cel­er­ate the pace of its credit tight­en­ing if in­fla­tion, which has been dor­mant for years, starts to show signs of ac­cel­er­at­ing. The re­cent mar­ket tur­moil was trig­gered by a re­port that wages for the 12 months end­ing in Jan­uary had climbed at the fastest pace in eight years, rais­ing con­cerns that in­fla­tion pres­sures could be grow­ing.

In his com­ments, Pow­ell did not ex­press wor­ries that the econ­omy was start­ing to over­heat, stress­ing in­stead a num­ber of de­vel­op­ments show­ing eco­nomic strength.

“The ro­bust job mar­ket should con­tinue to sup­port growth in house­hold in­comes and con­sumer spend­ing, solid eco­nomic growth among our trad­ing part­ners should lead to fur­ther gains in U.S. ex­ports and up­beat busi­ness sen­ti­ment and strong sales growth will likely con­tinue to boost busi­ness in­vest­ment,” Pow­ell said.

Some econ­o­mists have raised con­cerns that re­cent moves by the Trump ad­min­is­tra­tion and Congress to boost eco­nomic growth through $1.5 tril­lion in tax cuts and in­creased gov­ern­ment spend­ing could cause the Fed to worry about over­heat­ing and in­fla­tion.

But Pow­ell said that the gov­ern­ment’s fis­cal pol­icy was now “more stim­u­la­tive,” which would help to boost in­fla­tion, which has been chron­i­cally low in re­cent years. He said that the Fed ex­pected in­fla­tion to move up this year and then sta­bi­lize around the Fed’s 2 per­cent tar­get.

Pow­ell was de­liv­er­ing the Fed’s semi-an­nual mon­e­tary re­port and tes­ti­mony to Congress, ap­pear­ing be­fore the House Fi­nan­cial Ser­vices Com­mit­tee on Tues­day and the Se­nate Bank­ing Com­mit­tee on Thurs­day.

Dur­ing her four years as Fed leader, Yellen of­ten re­ceived a rough re­cep­tion from Repub­li­cans in the House who be­lieved the Fed, through the ex­tra­or­di­nary mea­sures it used to com­bat the 2008 fi­nan­cial cri­sis and the deep re­ces­sion that fol­lowed, had grown too pow­er­ful and too in­de­pen­dent. To im­pose more con­trol, House GOP law­mak­ers pushed leg­is­la­tion that would re­quire the Fed to fol­low a spe­cific mon­e­tary rule in set­ting in­ter­est rates.

Jerome Pow­ell

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