Pow­ell's bullish out­look on US econ­omy rat­tles mar­kets

Starkville Daily News - - FORUM - By MARTIN CRUTSINGER AP Eco­nomics Writer

WASH­ING­TON (AP) — New Fed­eral Re­serve Chair­man Jerome Pow­ell de­liv­ered a mes­sage Tues­day that wasn't quite what Wall Street had ex­pected: The U.S. econ­omy is do­ing well, maybe even bet­ter than he thought late last year.

Pow­ell em­pha­sized in his first Con­gres­sional tes­ti­mony that the cen­tral bank plans to raise rates grad­u­ally. Nonethe­less, his grow­ing op­ti­mism about the econ­omy rat­tled in­vestors. Trea­sury yields climbed and stocks fell amid fresh spec­u­la­tion that the Fed would ac­cel­er­ate the pace of hikes in its bench­mark pol­icy rate this year. The Dow Jones in­dus­trial av­er­age closed down 299 points.

The Fed raised rates three times in 2017 and had pro­jected in De­cem­ber that it would raise rates an­other three times this year. How­ever, many pri­vate econ­o­mists said they now ex­pected the Fed will boost rates four times this year rather than three.

"My per­sonal out­look for the econ­omy has strength­ened since De­cem­ber," Pow­ell said when asked whether the Fed might boost its pro­jec­tion for rate hikes from three to four when it up­dates its out­look next month.

Pow­ell would not say whether the Fed's pro­jec­tion for rate hikes would change. But he noted a num­ber of ways that the eco­nomic out­look has im­proved since De­cem­ber, in­clud­ing stronger data on growth and in­fla­tion, the pas­sage of a $1.5 tril­lion tax cut in late De­cem­ber and an in­crease in gov­ern­ment spend­ing in a Jan­uary bud­get deal.

Pow­ell said that he would not spec­u­late on whether the num­ber of hikes would be boosted since any change will de­pend on the in­di­vid­ual fore­casts of each of the 15 mem­bers of the Fed's pol­icy com­mit­tee.

But pri­vate econ­o­mists said they saw Pow­ell's com­ments as a strong sig­nal that the Fed will be rais­ing its rate fore­cast at its next meet­ing in March.

Pow­ell's com­ments came as he de­liv­ered the Fed's semi-an­nual mon­e­tary re­port to the House Fi­nan­cial Com­mit­tee. He will ap­pear be­fore the Se­nate Bank­ing Com­mit­tee on Thurs­day.

His re­cep­tion be­fore the House panel stood in marked con­trast to how the com­mit­tee in­ter­acted with Janet Yellen. Repub­li­cans of­ten chal­lenged Yellen, a Demo­crat, dur­ing ex­changes in which she was of­ten in­ter­rupted by male law­mak­ers who dis­missed her an­swers on a wide va­ri­ety of top­ics.

A fre­quent flash-point was Yellen's ob­jec­tion to GOP-spon­sored leg­is­la­tion to limit the Fed's in­de­pen­dence by re­quir­ing the Fed to fol­low a spe­cific mon­e­tary rule in set­ting in­ter­est-rate poli­cies.

Pow­ell, a Repub­li­can tapped by Pres­i­dent Don­ald Trump in Novem­ber when the pres­i­dent de­cided against giv­ing Yellen a sec­ond term, ex­pressed sup­port in his open­ing state­ment for us­ing var­i­ous mon­e­tary for­mu­las to help guide set­ting in­ter­est rates.

Dur­ing a hear­ing that lasted more than three hours, Pow­ell en­joyed a far more placid ex­change with the GOP-con­trolled com­mit­tee. A num­ber of Democrats, how­ever, sought to force Pow­ell to crit­i­cize a range of Trump eco­nomic poli­cies, from tax cuts the Democrats claimed would worsen in­come in­equal­ity, to huge bud­get deficits that are ex­pected to make deficits climb to­ward $1 tril­lion an­nu­ally.

Pow­ell, how­ever, was adept at stay­ing out of po­lit­i­cal con­tro­ver­sies, fre­quently say­ing that the sub­jects he was be­ing asked about were in the realm of poli­cies con­trolled by Congress and the ad­min­is­tra­tion and not the Fed­eral Re­serve.

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, had been an in­vest­ment banker be­fore join­ing the Fed board in 2012.

Even with three hikes last year, the Fed's pol­icy 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.

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," Pow­ell said.

Some econ­o­mists have raised con­cerns that re­cent moves by the Trump ad­min­is­tra­tion and Congress to boost eco­nomic growth through tax cuts and spend­ing in­creases could raise the risks of over­heat­ing and in­fla­tion.

But Pow­ell said that the gov­ern­ment's fis­cal pol­icy was now "more stim­u­la­tive," which he said would help to boost chron­i­cally low in­fla­tion 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.

(Photo by Jacquelyn Martin, AP)

The Na­tional debt is shown be­hind Fed­eral Re­serve Chair­man Jerome Pow­ell, left, as he makes the semi­an­nual mon­e­tary pol­icy re­port to the House Fi­nan­cial Ser­vices Com­mit­tee, Tues­day, Feb. 27, 2018, in Wash­ing­ton.

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