WASHINGTON—Federal Reserve Chairman Jerome Powell said the economy is seeing "extraordinary times" and the Fed's ongoing policy of gradual interest rate hikes reflect efforts to balance risks while "maintaining maximum employment and low and stable inflation."
Powell delivered his comments this week at the 60th Annual Meeting of the National Association for Business Economics in Boston.
"Chairman Powell's comments echoed his positive remarks on the state of the economy following last week's FOMC meeting," said NAFCU Chief Economist and Vice President of Research Curt Long, in his analysis. "He believes that concerns that the tight labor market could lead to inflationary pressures are misplaced. If he is correct, there would be ample space for the economy to continue to enjoy solid growth without overheating.
"As for interest rates, this reaffirms that the normalization path should continue to be a very gradual one, consistent with the committee's forecast of one more rate hike in 2018, followed by three in 2019," Long added.
Powell's speech focused on two main objectives: explaining how changes in the Phillips curve, which has long held that wages rise as unemployment drops—which hasn’t been the case in the recent expansion--help account for current forecasts of low unemployment with inflation hovering near 2%; and the importance of risk management in setting monetary policy.
What About Inflation?
Addressing inflation specifically, Powell said the Fed is alert for "possible downward drift in expectations" and, on the flip side, "an upward drift in expectations." Regardless, he said, the course remains to "conduct policy consistent with the [Federal Open Market Committee's] symmetric 2% inflation objective, and stand ready to act with authority if expectations drift materially up or down."
During the FOMC's meeting last week, the Fed decided to raise the federal funds target rate by a quarter-point to a range of 2% to 2.25% – marking the third rate hike this year. The committee's latest
projection also indicates another rate hike in December, and NAFCU said it expects quarterly rate increases to continue at least through mid-2019.
The FOMC meets again Nov. 7-8 and Dec. 18-19.