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Fed Chair Powell Indicates He’ll Keep Bolstering Growth in Public Debut Fed Chair Powell Indicates He’ll Keep Bolstering Growth in Public Debut
(about 3 hours later)
WASHINGTON — Jerome H. Powell, the new chairman of the Federal Reserve, painted an optimistic picture of the United States economy on Tuesday and signaled that he will continue to bolster strong growth during testimony before Congress in his public debut as head of the central bank.WASHINGTON — Jerome H. Powell, the new chairman of the Federal Reserve, painted an optimistic picture of the United States economy on Tuesday and signaled that he will continue to bolster strong growth during testimony before Congress in his public debut as head of the central bank.
Mr. Powell, in remarks to the House Financial Services Committee, said the job market and business investment continued to strengthen, and that headwinds once holding back the American economy had now turned into tailwinds.Mr. Powell, in remarks to the House Financial Services Committee, said the job market and business investment continued to strengthen, and that headwinds once holding back the American economy had now turned into tailwinds.
But he emphasized that he planned to continue the policies of his predecessor, Janet L. Yellen, who managed to gradually raise interest rates during her four-year term while still encouraging broad economic growth.But he emphasized that he planned to continue the policies of his predecessor, Janet L. Yellen, who managed to gradually raise interest rates during her four-year term while still encouraging broad economic growth.
The Fed “will continue to strike a balance between avoiding an overheated economy” and allowing inflation to tick up toward the Federal Reserve’s 2 percent target, Mr. Powell said. “Further gradual increase in the federal funds rate will best promote attainment of both of our objectives,” he added.The Fed “will continue to strike a balance between avoiding an overheated economy” and allowing inflation to tick up toward the Federal Reserve’s 2 percent target, Mr. Powell said. “Further gradual increase in the federal funds rate will best promote attainment of both of our objectives,” he added.
Mr. Powell, a member of the Fed’s board of governors who was sworn in as chairman earlier this month, faces two days of testimony before the House and Senate, his first public appearance in his new role.Mr. Powell, a member of the Fed’s board of governors who was sworn in as chairman earlier this month, faces two days of testimony before the House and Senate, his first public appearance in his new role.
His testimony comes at a critical moment in the economy’s trajectory, as global economies are strengthening and as the Trump administration’s $1.5 trillion tax cuts begin adding economic fuel to the United States.. His testimony comes at a critical moment in the economy’s trajectory, as global economies are strengthening and as the Trump administration’s $1.5 trillion tax cuts begin adding economic fuel to the United States.
Investors are eagerly awaiting signs of how the Fed, under Mr. Powell’s leadership, will respond, and whether it will seek to raise interest rates more quickly than expected. In his testimony, Mr. Powell sought to reassure the markets that, at least for now, he believes the Fed’s current path is the right one.Investors are eagerly awaiting signs of how the Fed, under Mr. Powell’s leadership, will respond, and whether it will seek to raise interest rates more quickly than expected. In his testimony, Mr. Powell sought to reassure the markets that, at least for now, he believes the Fed’s current path is the right one.
The Fed has forecast three rate increases in 2018. But some investors believe the central bank could lift its rate four times this year, especially if the Trump administration’s tax cuts, which took effect in January, provides a larger-than-expected boost to the economy and inflation. The Fed has forecast three rate increases in 2018. But some investors believe the central bank could lift its rate four times this year, especially if the Trump administration’s tax cuts, which took effect in January, provide a larger-than-expected boost to the economy and inflation.
At the beginning of February, data showing wage increases – a potential result of inflation – triggered a sharp sell-off in stock markets. Major markets have recovered most of those losses in the last few weeks and are trending again toward all-time highs. At the beginning of February, data showing wage increases — a potential result of inflation — triggered a sharp sell-off in stock markets. Major markets have recovered most of those losses in the last few weeks and are trending again toward all-time highs.
In his remarks, Mr. Powell downplayed concerns of market volatility, saying that financial conditions have become a little tighter, but not so tight as to weigh heavily on growth. And he continued to indicate that he sees the stronger economic news as a reason to carry out their plans for gradual rate hikes, rather than as a reason to start raising rates more quickly. Most Fed officials predicted in December the Fed would raise rates three times in 2018, as it did last year. In his remarks, Mr. Powell downplayed concerns of market volatility, saying that financial conditions have become a little tighter, but not so tight as to weigh heavily on growth. And he continued to indicate that he sees the stronger economic news as a reason to carry out the plans for gradual rate hikes, rather than as a reason to start raising rates more quickly. Most Fed officials predicted in December the Fed would raise rates three times in 2018, as it did last year.
Mr. Powell has taken the helm of the central bank at a time when the economy is nearing the end of its ninth year of expansion and the Fed has been steadily raising its interest rate back to more normal levels, after cutting them to nearly to zero to stimulate lending in the wake of the financial crisis. Lawmakers grilled Mr. Powell on financial regulation, the rollback of the Fed’s balance sheet, the effect of Trump administration tax cuts, and racial discrimination in mortgage lending.
In his responses, Mr. Powell suggested that he and other central bankers could be re-examining their prediction of three more rate hikes this year, given the passage of the Trump tax cuts and strong economic data since they made their last forecast in December.
In the interim, the Fed has seen continuing strength in the labor market, data that suggests inflation is moving toward its target, more stimulative fiscal policy, and continued economic strength around the globe, Mr. Powell said.
“My personal outlook for the economy has strengthened since December,” he said. “I would expect the next two years on the current path to be good years for the economy.”
He added that the Fed must be alert to both the buildup of financial imbalances and inflation, but that neither risk appeared high at the moment.
“There’s always a risk of a recession at any point in time, but I don’t see it as at all high at the moment,” Mr. Powell added.
Mr. Powell declined to comment in detail on fiscal policy but said the United States should be careful not to default on its debt, and that any spending should be directed at increasing the productive capacity of the economy. “We really need to get on a sustainable fiscal path, and the time to really be doing that is now,” he said.
Mr. Powell reaffirmed to House members that the Fed intends to loosen some types of financial regulation. One change would reduce capital requirements for some large banks, allowing them to rely more heavily on borrowed money.
The Fed will focus on making sure that regulation is less burdensome “without losing any safety and soundness,” Mr. Powell said, emphasizing the need to review regulations for smaller banks.
Mr. Powell has taken the helm of the central bank at a time when the economy is nearing the end of its ninth year of expansion and the Fed has been steadily raising its interest rate back to more normal levels, after cutting them nearly to zero to stimulate lending in the wake of the financial crisis.
Those rate hikes are intended to keep the economy from running too hot, while also giving the Fed the capacity to fight a future recession by once again cutting interest rates.Those rate hikes are intended to keep the economy from running too hot, while also giving the Fed the capacity to fight a future recession by once again cutting interest rates.
Investors widely expect the Federal Reserve to raise its benchmark interest rate in March, to a range of 1.5 percent to 1.75 percent, with some expecting another quarter point increase in June.Investors widely expect the Federal Reserve to raise its benchmark interest rate in March, to a range of 1.5 percent to 1.75 percent, with some expecting another quarter point increase in June.
Although a strong economy and low unemployment typically drive up inflation, it has remained puzzlingly low in recent years. Mr. Powell acknowledged the trend, but said that he believed sluggish price increases were due in part to temporary factors and that inflation would gradually rise this year.Although a strong economy and low unemployment typically drive up inflation, it has remained puzzlingly low in recent years. Mr. Powell acknowledged the trend, but said that he believed sluggish price increases were due in part to temporary factors and that inflation would gradually rise this year.
Investors are watching carefully for any indication that inflation could lift off faster than they had expected — a sign that the Fed might have to raise rates more quickly than it planned and risk choking off economic growth.Investors are watching carefully for any indication that inflation could lift off faster than they had expected — a sign that the Fed might have to raise rates more quickly than it planned and risk choking off economic growth.
Fed chairs are required to go before Congress twice a year to discuss the central bank’s operations. During his testimony this week, Mr. Powell is likely to be grilled about his plans for guiding interest rates, paring down the Fed’s balance sheet and relaxing rules for banks. Mr. Powell has taken up his post at a time when the Fed’s Board of Governors is short staffed, with just three members rather than seven. He joins Lael Brainard, an Obama administration nominee, and Randal K. Quarles, the Trump administration’s pick for vice chairman for supervision, a position where he oversees banking regulation. Another Trump administration nominee, economist Marvin Goodfriend, appears to be held up by unexpected opposition to his nomination.
Mr. Powell, a former investor and member of the Federal Reserve’s board of governors under Ms. Yellen, was sworn on Feb. 5 as the Federal Reserve’s 16th chair, where he is charged with setting the benchmark interest rate that speeds or slows economic activity.
He has taken up his post at a time when the Fed’s Board of Governors is short staffed, with just three members rather than seven. He joins Lael Brainard, an Obama administration nominee, and Randal K. Quarles, the Trump administration’s pick for vice chairman for supervision, a position where he oversees banking regulation. Another Trump administration nominee, economist Marvin Goodfriend, appears to be held up by unexpected opposition to his nomination.
On Monday, Mr. Quarles also painted an upbeat picture of the economy, saying he was cautiously optimistic that faster economic growth is in the offing.On Monday, Mr. Quarles also painted an upbeat picture of the economy, saying he was cautiously optimistic that faster economic growth is in the offing.
“The factors that have been holding back growth need not be permanent and could turn, even fairly rapidly,” Mr. Quarles said in a speech before the National Association for Business Economics.“The factors that have been holding back growth need not be permanent and could turn, even fairly rapidly,” Mr. Quarles said in a speech before the National Association for Business Economics.
He pointed to recent doses of fiscal stimulus, including the tax cut that took effect in January, and stronger global growth as reasons for optimism.He pointed to recent doses of fiscal stimulus, including the tax cut that took effect in January, and stronger global growth as reasons for optimism.
“There are indications that we have a sustainably stronger economy,” Mr. Quarles said. “It’s a little too early to call that as happening but there are clear indications that it could be happening.”“There are indications that we have a sustainably stronger economy,” Mr. Quarles said. “It’s a little too early to call that as happening but there are clear indications that it could be happening.”