Gradual Rate Hikes as long as the Economy Stays Strong: Fed

By Joyce Yu

Philadelphia, PA–Federal Reserve will continue to gradually raise interest rate should the economy remains strong, said Fed Chair Jerome Powell on Friday as the central bank looks to find the right approach between promoting growth and controlling excesses.

In his speech at the Fed’s annual meeting, Powell expressed confidence in the economy. He said, “The economy is strong. Inflation is near our 2% objective, and most people who want a job are finding one.”  With no mention of the President Donald Trump’s criticism against the Fed, Powell further added, “My colleagues and I are carefully monitoring incoming data, and we are setting policy to do what monetary policy can do to support continued growth, a strong labor market, and inflation near 2 percent.”

Not seeing inflation getting out of hand, Powell endorsed the current trajectory the Fed has been following since December 2015 which is unlikely to change so long as there aren’t any significant changes to economic trends.

“The Chairman assessed the economy as good but not overheating which is a positive sign. He made his viewpoint quite clear that gradual interest rate hikes would likely be forthcoming if the economy remained strong. His comments about inflation were especially significant as he downplayed going over 2 percent and indicated a steady course,” B. RILEY FBR’ Managing Director Mark Grant told Reuters.

There have been two hikes in 2018, and committee members have indicated that two more are coming with the current target for the benchmark funds rate at 1.75% to 2%. Acknowledging the turmoil in emerging markets, Powell said, “there are risk factors abroad and at home that, in time, could demand a different policy response.”

One potential risk is the slowdown in Chinese economy. China has seen a slowdown in investment, factory production and retail sales, as official data in July suggested. In the meantime, US and Chinese officials have ended two days of talks with no clear breakthrough. Lindsay Walters, the White House deputy press secretary, said on Thursday evening that the two sides had “exchanged views on how to achieve fairness, balance and reciprocity in the economic relationship”.

But even as the officials met at the Treasury department, $16bn in new tariffs on Chinese imports were enacted by the Trump administration. This was followed by Beijing’s immediate retaliatory measures of the same scale. Analysts say the US-China trade conflict, while dragging on China’s economic activity, is of smaller impact when compared with domestic headwinds caused by slower credit growth.


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