WASHINGTON: Federal Reserve Chairman Jerome Powell said the central bank will continue to gradually raise interest rates for now to keep inflation near target amid a strong United States labor market.The Federal Open Market Committee, the Fed panel that sets interest rates, believes that for now the best way forward is to keep gradually raising the federal funds rate, Powell said in prepared testimony before the Senate Banking Committee.We are aware that, on the one hand, raising interest rates too slowly may lead to high inflation or financial market excesses, Powell said in the text of his remarks Tuesday.On the other hand, if we raise rates too rapidly, the economy could weaken and inflation could run persistently below our objective.
Powell addresses Congress with the underpinnings of the US expansion looking solid.
Unemployment stands close to an 18-year low and inflation is around the Feds 2 per cent target, though some sentiment indicators are starting to flash warning signs over escalating trade disputes.
He will appear before the House Financial Services Committee Wednesday.GRADUAL PACEOfficials in June signaled they plan to continue to raise rates at a gradual pace, penciling in two more quarter-point hikes for 2018.Powells emphasis that gradual increases are the right path for now may suggest the committees debate about pausing those hikes once the rate gets closer to a level they consider neutral neither adding stimulus nor hurting growth is likely to intensify.Powell listed four reasons why the job market will remain strong with inflation near the Feds 2 per cent target over the next several years.
Financial conditions remain favorable to growth, he said, and a stronger financial system is prepared to meet the credit needs of the economy.Federal tax and spending policies likely will continue to support the expansion, Powell said, and the outlook for economic growth abroad remains solid despite greater uncertainties in several parts of the world.TRADE TENSIONSPowell also warned that it is difficult to predict how trade tensions as well as the size and timing of the economic effects of the recent changes in fiscal policy will shape the economic outlook.
The risks of a weaker or stronger economy are roughly balanced, he said.The US economy grew at a 2 per cent annual rate in the first quarter and that pace is expected to double to 4 per cent in the second quarter, according to analysts surveyed by Bloomberg.Amid a hot labor market, employers added 1.3 million new jobs in the first six months of the year and gains are starting to expand more broadly.
Unemployment for black people in May touched the lowest level on record.