Fed Chair: US outlook strong, gradual rate hikes expected

WASHINGTON: The US economic outlook is strong and continued gradual increases in the key interest rate will help keep it on track, Federal Reserve Chairman Jerome Powell said in his debut congressional appearance Tuesday.

Powell said inflation has been held down by temporary factors but is set to rise this year closer to the two percent goal, as wage gains also accelerate at long last.

In semi-annual testimony to the House Financial Services Committee, his first as Fed chairman, Powell said "the economic outlook remains strong" and "further gradual increases in the federal funds rate will best promote attainment of both of our objectives" of full employment and stable inflation.

The central bank's preferred inflation measure rose only 1.5 percent last year, well short of the target, but Powell repeated the Fed's view that it was held down partly by "transitory influences that we do not expect will repeat."

The Fed raised the benchmark interest rate in December, and has indicated that three rate hikes are expected this year. However, that was before strong wage gains in the January employment report fueled fears the Fed will have to raise rates faster to head off inflation.

Many economists now expect four moves in 2018, with the first coming at the policy meeting in late March.

While Powell gave no hint in his testimony of the number of increases he expects, he was bullish on the outlook, noting that "some of the headwinds the US economy faced in previous years have turned into tailwinds."

In particular, in the wake of the tax cuts Congress passed in December, "fiscal policy has become more stimulative" while demand for US exports has firmed given the "solid economic growth of our trading partners," which is helping the manufacturing sector.

"In this environment, we anticipate that inflation on a 12-month basis will move up this year," reaching the two percent goal in the medium term, he said. "Wages should increase at a faster pace as well."

The Fed chief will take questions from lawmakers after his testimony, which could provide more details on his thinking.