New US Federal Reserve boss Jerome Powell says “gradual” rate rises are needed
Jerome Powell opened his innings as head of the world’s most powerful central bank today with a bullish view on the US economy and a vow to continue to raise interest rates.
The new Federal Reserve chair told a US Congressional committee that the rate-setting Federal Open Market Committee will continue to pursue “further gradual increases in the federal funds rate”.
Powell, who was picked to replace Janet Yellen by President Donald Trump, had previously not spoken publicly about his monetary policy views or the economy, even in the face of stock and bond market turmoil.
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The slight tightening of financial conditions in the US at the start of the month has not affected the “strong” economic outlook, Powell said.
He said: “The robust job market should continue to support growth in household incomes and consumer spending, solid economic growth among our trading partners should lead to further gains in US exports, and upbeat business sentiment and strong sales growth will likely continue to boost business investment.”
Headwinds have turned into tailwinds, Powell said, with Trump’s tax cuts likely to further stimulate the economy as the global economy has boosted the US.
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Powell, a Republican, also gave some hints of differences from Yellen, who was appointed by Democrat President Barack Obama.
While saying he is working to pursue “continuity” in monetary policy, at the conclusion of his short statement he also highlighted his belief in a rules-based approach, generally a sign of a desire to tighten monetary policy more consistently if inflation overshoots its target.
“Personally, I find these rule prescriptions helpful,” he said.
He said the stable labour market participation rate is a “sign of job market strength, given that retiring baby boomers are putting downward pressure on the participation rate”. Some economists point to the falling rate, which measures how many people are in or seeking work, as a sign of malaise.
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