Fed chair Jerome Powell sees ‘no evidence’ of overheating in US economy

Washington: Federal Reserve chairman Jerome Powell said he sees no signs the US economy is overheating, and reiterated the central bank will continue to raise rates gradually to keep unemployment and inflation in balance.

“By continuing to gradually raise interest rates over time, we’re trying to balance those two things and achieve inflation moving up to target but also make sure the economy doesn’t overheat,” Powell told the Senate Banking Committee on Thursday in his second appearance before lawmakers this week. He added: “There’s no evidence the economy is currently overheating.”

Powell also said he doesn’t see a tightening labour market causing wages to hit “a point of acceleration.”

“I would expect that some continued strengthening in the labor market can take place without causing inflation,” he said. “We don’t see any strong evidence yet of a decisive move up in wages.”

Powell, 65, gave his first congressional testimony as chairman this week. On Tuesday he told members of the House Financial Services Committee his outlook for the economy had strengthened since December, causing investors to increase slightly the odds they see for a fourth interest-rate increase this year. In their most recent set of projections, Fed officials in December penciled in three hikes in 2018. They meet again later this month.

Stocks were little changed after falling for two days since his first day of testimony. The yield on the 10-year Treasury note was 2.86% at 10.42am in New York, compared to Tuesday’s 2.92% peak.

Investors are taking the measure of the Powell Fed as it debates how quickly to raise interest rates with an economy that is growing steadily and receiving new stimulus from tax cuts and spending increases signed by President Donald Trump in December. Inflation remains under the central bank’s 2% target. A jobless rate of 4.1% is its lowest since 2000 and below what Fed officials view as it’s long-term sustainable level.

Data released earlier Thursday showed real disposable income in the US rose the most since 2015, indicating increased spending power may boost the economy this quarter. Filings for unemployment also dropped last week to the lowest level in almost five decades, providing more evidence of a tightening US labour market. Bloomberg