ZCZC
BCN-14
US-BANK-RATE
‘Strong’ case for further rate hikes: Fed’s Powell
WASHINGTON, June 21, 2018 (BSS/AFP) – Historically low unemployment and
signs of rising inflation mean there is a “strong” case for continued, steady
interest rate hikes, US Federal Reserve Chairman Jerome Powell said
Wednesday.
The Fed this month adopted its seventh rate hike since 2015 and forecast
an accelerated pace of increases in its benchmark lending rates, predicting a
total of four hikes for the year due to robust hiring and economic activity
amid rising prices.
Given current conditions, and with “the risks to the outlook roughly
balanced, the case for continued gradual increases in the federal funds rate
is strong,” Powell said in an address to a European Central Bank forum in
Portugal.
The Fed was befuddled last year by the extended weakness in inflation even
though unemployment has steadily trended downwards.
But measures of price pressures now show inflation is moving towards the
Fed’s two percent target. Still, the central bank has signaled it will not
overreact, allowing inflation to run a little hot to offset the years when it
ran cold.
Nevertheless, analysts say 2018 could be the year when a set of
circumstances — higher oil prices, a weakening dollar and simultaneous
global growth not to mention a brewing global trade war — at last combine
with scarce labor and rising employment to drive up prices.
Powell also noted, however, that the Fed faced heightened uncertainty when
determining the so-called natural rate of unemployment — the level at which
labor markets are balanced — making it harder to tell when the central bank
should take action.
“Natural rate estimates have always been uncertain and may be even more so
now as inflation has become less responsive to the unemployment rate,” he
said, according to the text of his prepared remarks.
A less direct relationship between the unemployment rate and price
pressures “makes it harder to assess whether movements in inflation reflect
the cyclical position of the economy or other influences,” said Powell.
BSS/AFP/HR/0958