Case for more rate hikes remains strong, says Fed chair

by Francis Monfort22 Jun 2018

The Federal Reserve may continue gradually increasing the federal funds rate given the broad support for hikes among the participants of the rate-setting Federal Open Market Committee, Fed Chair Jerome Powell said.

“As is often the case, in the current environment, significant uncertainty attends the process of making monetary policy. Today, with the economy strong and risks to the outlook balanced, the case for continued gradual increases in the federal funds rate remains strong,” said Powell, who spoke at a central banking forum in Portugal.

Powell said that the view is supported by conditions including the low unemployment, which is expected to decline further. Additionally, the current inflation level that is close to the Fed’s objective backs the case for continued increases, he said.

Although there was a clear need for highly accommodative monetary policy in the early stages of expansion during the economic recovery, conditions have changed. Nine years on, Powell described the US economy as “performing very well.”

“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. The labor market is particularly robust, with unemployment at its lowest level since April 2000. Inflation has moved up close to our 2% objective, although we have yet to see it remain near that objective on a sustained basis,” Powell said.

Powell said maximum employment coupled with price and financial stability continues to be the Fed challenge. He expects the job market to strengthen further.

“Many forecasters expect the unemployment rate to fall into the mid-3s and to remain there for an extended period. If that comes to pass, it will mean the lowest unemployment in the United States since the late 1960s,” he said.

 

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