Last Updated Feb 27, 2018 10:21 AM EST
Federal Reserve Chair Jerome Powell says the central bank can stay its current course of gradual increases in interest rates in light of a positive forecast for economic growth.
In prepared testimony delivered Tuesday to the House Financial Services Committee, Powell noted: “some of the headwinds the U.S. economy faced in previous years have turned into tailwinds. Fiscal policy has become more stimulative and foreign demand for U.S. exports is on a firmer trajectory.”
In his first public appearance in his new role, the Fed chief downplayed the notion that the recent stock market correction and rising interest rates would hinder growth.
“We do not see these developments as weighing heavily on the outlook for economic activity, the labor market and inflation,” he said. “Indeed the economic outlook remains strong.”
The Federal Open Market Committee, or FOMC, has indicated it would raise the benchmark lending rate three times this year, and nothing in Powell’s prepared remarks indicated a change in that stance, even amid government stimulus in the form of spending increases and tax cuts passed by Congress and signed by President Trump in late 2017.
“The FOMC will continue to strike a balance between avoiding an overheated economy and bringing … price inflation to 2 percent on a sustained basis,” Powell said.
The testimony is the first hint from Powell as Fed chief that the tax overhaul and spending plan would not quickly spur the Fed into speeding up its pace of rate hikes, which began with Powell’s predecessor, Janet Yellen, in 2015.
Analysts largely expect the central bank will move at its next policy gathering next month.
Powell’s testimony “suggests that a March rate hike is, as futures markets believe, a near certainty,’ Paul Ashworth, chief U.S. economist at Capital Economics, said in a note to clients. “We continue to expect the Fed to hike the fed funds rate four times this year, taking it to between 2.25 percent and 2.50 percent by end 2018. We then anticipate a further two rate hikes in the first half of 2019, before a slowdown in economic growth prompts the Fed to move to the side lines.”
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