WASHINGTON — Federal Reserve Chairman Jerome Powell stressed Thursday that the central bank still believes it has room to stay on a path of gradual rate hikes that will allow wage growth to accelerate.
Powell, who rattled markets earlier this week with comments that seemed to indicate faster rate hikes ahead, told the Senate Banking Committee that the central bank has not seen decisive evidence of a strong move up in wage growth or a worrisome rise in inflation. For that reason, he said, the Fed does not feel it needs to speed up the pace of benchmark policy rate increases.
That answer stood in contrast to remarks Tuesday before the House Financial Services Committee, when Powell appeared to be signaling that the Fed could be on the verge of boosting its projections to show four rate hikes this year instead of three because of widespread signs that economic growth was strengthening.
Those comments sent the Dow Jones industrial average down by 299 points as investors grew more concerned about rising interest rates. The market fell again Thursday after Powell’s clarifying comments, though that downturn was attributed to fears of a potential trade war after remarks by President Trump that the administration was preparing to levy punitive tariffs on imports of steel and aluminum.
Powell was making his public debut as Fed chairman after succeeding Janet Yellen on Feb. 5, with appearances before the House on Tuesday and the Senate on Thursday to deliver the central bank’s semi-annual monetary policy report.
Powell sounded the same upbeat themes about the economy’s growth prospects in both appearances. But on Thursday he sought to stress that the central bank has not seen any reason to alter its gradual approach to raising rates. He said the central bank was continuing to raise rates at a slow enough pace that wage growth and inflation, which has been below the Fed’s 2 percent target for six years, can both accelerate.
“By continuing to gradually raise interest rates over time we are trying to … achieve inflation moving up to target, but also make sure that the economy doesn’t overheat,” Powell said. “There is no evidence that the economy is currently overheating.”
Powell said that he had been surprised that wage gains have not picked up even though the unemployment rate had fallen to 4.1 percent. “I will be honest. I would have thought you would have seen more wage increases by this point,” he said.
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