Fed hints at more interest rate hikes to come

Federal Reserve Chairman Jerome Powell signaled Friday that he expects the Fed to continue gradually raising interest rates if the U.S. economic expansion remains strong.

Powell added that while annual inflation has risen to near the Fed's 2 percent target rate, it doesn't seem likely to accelerate above that point. That suggests that he doesn't foresee a need for the Fed to step up its rate hikes. Next month, the Fed is widely expected to resume raising rates.

Speaking to an annual conference of central bankers in Jackson Hole, Wyoming, Powell said the Fed recognizes the need to strike a careful balance between its mandates of maximizing employment and keeping price increases stable. He said a gradual approach to rate hikes is the best way to navigate between the risks of raising rates too fast and “needlessly shortening the expansion” and moving too slowly and risking an overheated economy.

“My colleagues and I,” the Fed chairman said in his speech, “are carefully monitoring incoming data, and we are setting policy to do what monetary policy can do to support continued growth, a strong labor market, and inflation near 2 percent.”

Powell sketched a positive picture of the U.S. economy and said the Fed's incremental approach to raising rates has so far succeeded.

“The economy is strong,” he said. “Inflation is near our 2 percent objective and most people who want a job are finding one. We are setting policy to do what monetary policy can do to support continued growth, a strong labor market and inflation near 2 percent.”

At the same time, Powell said that in case of another financial crisis or intensified concern about high inflation, “We will do whatever it takes.” That echoed a phrase that was used to describe the extraordinary steps the Fed and other central banks took after the 2008 financial crisis plunged the U.S. and global economies into deep recessions.

The chairman's measured tone about the economy and his message that the Fed plans to stick with a gradual pace of rate hikes appeared to meet approval with investors. The Dow Jones industrial average was up about 160 points in early afternoon trading, and bond prices rose as well.

Powell made no mention of the recent public criticism from President Donald Trump, who has said he is unhappy with the Fed's rate hikes.

Jonathan Crosby / Associated Press John Williams, left, President and CEO of the Federal Reserve Bank of New York, and Jerome Powell, Chairman of the Board of Governors of the Federal Reserve System, right, walk together after Powell's speech at the Jackson Hole Economic Policy Symposium on Friday.