Fed’s Powell vows to ‘strike a balance’ to avoid overheating economy
Federal Reserve Chairman Jerome Powell pledged Tuesday to keep the economy humming without starting a recession.
In his first appearance on Capitol Hill in his new role, Powell told House lawmakers that the Fed “will continue to strike a balance between avoiding an overheated economy” and reaching 2% inflation, the target the Fed considers healthy.
In prepared remarks, he did not suggest any plans to speed up the Fed’s planned interest rate hikes. The central bank has penciled in three rate hikes this year and two more in 2019.
Unlike his predecessor, Janet Yellen, who steadily worked to rev up the economy after the 2008 financial crisis, Powell must ensure that the economy doesn’t grow so robustly that inflation takes off.
Economists are watching whether inflation is finally picking up. Unemployment is low, and the job market is tight, so employers will have to pay more to attract and keep workers. That means businesses may have to raise prices.
The Fed’s preferred gauge of inflation stands at 1.5%. But central bankers expect it to “move up” this year. Data show it was already “a little bit higher” by the end of last year.
Fears that higher inflation might force the Fed to raise rates faster than expected helped send stocks plunging earlier this month. Stocks have since recovered most of what they lost, and bond yields, which reflect inflation fears, have dropped.
Powell said many of the challenges that the economy faced in the last few years are now in the background.
He said that “fiscal policy is becoming more stimulative,” although he did not specifically mention the recently enacted Republican tax cuts or a $300 billion spending bill. He said under these conditions, including an expected uptick in inflation, wages will increase at a “faster pace.”
The top U.S. central banker maintained policymakers’ new stance that “further gradual increases” of interest rates will be necessary as the Fed works toward its two objectives, maximum employment and price stability.