U.S. Fed chairman pledges to raise interest rates gradually

U.S. Fed chairman pledges to raise interest rates gradually
  • Clock-gray 19:23
  • calendar-gray 27 February 2018

U.S. Federal Reserve Chairman Jerome Powell told U.S. lawmakers on Tuesday that the central bank would continue to gradually raise interest rates, APA reports.


"The U.S. economy grew at a solid pace over the second half of 2017 and into this year," said Powell in prepared remarks to the House Financial Services Committee.


Fed officials expect three interest rate hikes this year due to strong momentum in economic expansion, according to the semiannual Monetary Policy Report to the Congress released by the Fed last week.


Powell told lawmakers in his first monetary policy testimony that "gradually reducing monetary policy accommodation will sustain a strong labor market while fostering a return of inflation to 2 percent."


Monthly job gains averaged 179,000 from July through December 2017, and payrolls rose an additional 20,000 in January, according to the Bureau of Labor Statistics.


"This pace of job growth was sufficient to push the unemployment rate down to 4.1 percent, about 0.75 percentage point lower than a year earlier and the lowest level since December 2000," said Powell.


Against the backdrop of solid growth and a strong labor market, inflation has been low and stable. The personal consumption expenditures (PCE) price index, an inflation index favored by the Fed, increased 1.7 percent in the 12 months ending in December.


"We continue to view some of the shortfall in inflation last year as likely reflecting transitory influences that we do not expect will repeat," Powell said.


According to the minutes for Fed's policy meeting on Jan. 30 and 31, Fed officials have become more confident about the growth and inflation outlook. The Fed is expected to raise interest rates for the first time this year at the next policy meeting in March.


Powell also mentioned the potential impact of Trump administration's fiscal policies on Fed's monetary policy. He told lawmakers that "some of the headwinds the U.S. economy faced in previous years have turned into tailwinds."


U.S. President Donald Trump signed a tax cuts bill into law in December to massively reduce income tax for corporations and wealthy families. The Trump administration also plans to increase government spending in the next two years.


"In gauging the appropriate path for monetary policy over the next few years, the Federal Open Market Committee (FOMC) will continue to strike a balance between avoiding an overheated economy and bringing PCE price inflation to 2 percent on a sustained basis," Powell said.

Other news