Written exclusively for InTouch Capital Markets
6th April 2018
By Steven K. Beckner
When the Federal Open Market Committee raised the federal funds rate another 25 basis points two weeks ago and made modest increases in its rate projections over the next three years, there was concern about how much further the Federal Reserve’s policymaking body might raise rates.
But Chairman Jerome Powell offered some reassurances to the Economic Club of Chicago Friday.
Powell was upbeat on a day when the Labor Department announced disappointing March job gains and modest wage increases and when trade war fears roiled financial markets, predicting continued strength in the labor market and the overall economy. But he twice vowed the Fed will continue to take a “patient approach” to raising interest rates and repeatedly pledged that further rate hikes will be “gradual.”
Explaining the FOMC’s strategy, Powell said, “as long as the economy continues broadly on its current path, further gradual increases in the federal funds rate will best promote these goals.”
Taking the “middle ground” that he outlined at his March 21 post-FOMC press conference, Powell said “raising rates too slowly would make it necessary for monetary policy to tighten abruptly down the road, which could jeopardize the economic expansion.. But raising rates too quickly would increase the risk that inflation would remain persistently below our 2 percent objective. Our path of gradual rate increases is intended to balance these two risks.”