POWELL: FRS WILL INCREASE BETS AGAIN
US Federal Reserve Chairman Jerome Powell said the central bank could continue to raise interest rates gradually, as growth prospects remain favorable, and the recent surge in financial volatility should not affect the US economy, Bloomberg reports.
“Some of the obstacles that the US economy faced in previous years have turned into factors that contribute to growth,” Powell said in a written report to the Financial Services Committee of the US House of Representatives. “Fiscal policy has become more stimulating, and external demand for US exports is on a more solid trajectory.”
“By determining the appropriate course of monetary policy over the next few years, the FOMC will continue to balance the prevention of overheating of the economy and bringing the PCE inflation indicator to 2% on a sustainable basis,” he said. Powell in his first speech before the congress as head of the Fed.
According to him, the recent correction in the stock market and the growth of yield on US bonds should not impede growth.
“We do not believe that these events greatly influence the prospects for economic activity, the labor market and inflation,” Powell said. “Economic prospects remain strong.”
The head of the Fed repeated the January FOMC report, saying that “further gradual increase of the” interest rate “will best contribute to” achieving the goals of the regulator – maximum employment and price stability.
“We expect that inflation in annual terms will grow this year and stabilize around the 2% FOMC target in the medium term,” he added.
Weak wage growth, according to Powell, was associated with low productivity. However, a new wave of investment spending “should eventually support higher productivity growth rates.”
“Wages should also increase at a faster pace,” Powell added.
He noted that the FOMC continued to consider low inflation last year “as a possible reflection of time factors,” a repetition of which is not expected.
In their December forecasts, Fed officials pointed to three rate hikes in 2018. Investors expect the regulator to tighten policy at a meeting on March 20-21.
As reported by “Vesti.Ekonomika”, according to the US Department of Labor, consumer prices (CPI) in January rose by 0.5% compared to the previous month after an increase of 0.2% in December. In annual terms, prices increased by 2.1% after a similar increase in December. Analysts on average predicted a smaller price increase: by 0.3% compared to December and by 1.9% in annual terms.
Prices excluding the cost of energy and food (Core CPI) in January rose by 0.3% compared to the previous month, the maximum rate since January 2017. This reinforces expectations about accelerating inflation and a more rapid increase in interest rates by the Fed this year .
In early February, signs of increased inflationary pressures provoked turmoil in the markets. Data on the US labor market, released on February 2, showed that employment growth accelerated in January, and wages grew at the fastest pace in more than eight and a half years.
Head of the fixed-income instruments department of the Asia-Pacific Goldman Sachs Asset Management in Sydney Philip Moffitt believes that the US Central Bank is likely to raise interest rates four times this year, despite the fact that it expects about three increases.
Chief global strategist J.P. Morgan David Kelly also believes that, given the events of the past few weeks, Fed officials now adhere to a more “hawkish” position than during the January meeting. In his opinion, “if there is not any shock,” the rates this year will be raised four times.
In addition to accelerating core inflation and wage growth in the US, the strategist in an interview with CNBC noted the stimulating impact of the budget agreement. The law on the budget, which US President Donald Trump signed on February 9, provides for an increase in federal budget spending by almost $ 300 billion over two years.