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Fed Chair Jerome Powell Says Case for Gradual Rate Hikes is 'Strong'

Powell reiterates that the case for Fed's policy of gradual interest rate hikes is

Investing.com - Federal Reserve chairman Jerome Powell said on Wednesday that the economic backdrop in the U.S. supported the central bank’s outlook to move ahead with gradual policy tightening.

In a speech prepared for the ECB Forum on Central Banking in Sintra, Portugal on Wednesday, Powell noted that the need for highly accommodative monetary policy was clear during the economic recovery.

“But with unemployment low and expected to decline further, inflation close to our objective, and the risks to the outlook roughly balanced, the case for continued gradual increases in the federal funds rate is strong,” he said.

Powell indicated that the U.S. economy is performing “very well” after nine years of an expansion.

“Growth is meaningfully above most estimates of its long-term trend--though admittedly, that trend is not as strong as we would like it to be,” he said.

Powell also highlighted that the labor market was “particularly robust” while inflation has moved up close to the Fed’s 2% target.

Overall, Powell admitted that persistently strong economic conditions could pose risks to inflation and possibly financial stability, but he also recognized that there could be lasting benefits, such as the tight labor market drawing more people into the labor force.

Powell did point out that the current environment entailed significant uncertainty in the process of making monetary policy, but still ended his speech on an upbeat note.

“Today, with the economy strong and risks to the outlook balanced, the case for continued gradual increases in the federal funds rate remains strong and broadly supported among FOMC participants,” Powell concluded.

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