Federal Reserve Chairman Jerome Powell said the economy's acceleration warrants gradually tightening the loose monetary policy implemented after the 2008 financial crisis, as he planned to testify Tuesday, Feb. 27, before a U.S. House of Representatives panel for the first time since being sworn in earlier this month.
Economic growth accelerated to about 3% in the second half of last year, compared with 2% in the first half, Powell noted, while financial conditions remain "accommodative." He pointed to the recent tax cuts and spending bills as supporting further acceleration, even as inflation remains below the central bank's target of 2%.
This month's heightened price swings in stock and bond markets haven't moved the Fed off of its trajectory, Powell said.
"Some of the headwinds the U.S. economy faced in previous years have turned into tailwinds," Powell said in prepared remarks ahead of testimony Tuesday at 10 a.m. ET before the House Financial Services Committee. "Despite the recent volatility, financial conditions remain accommodative. At the same time, inflation remains below our 2% longer-run objective."
Powell's comments echoed Fed officials' assessment at a meeting in January that "gradual" rate increases are warranted; in past rate-hiking cycles, the Fed has raised rate at twice the recent pace of roughly three increases per year.
Recent reports showing faster wage gains had kindled concerns among some traders that the Fed might need to accelerate the pace of increases to tamp down inflation.
The Fed raised rates three times in 2017, bringing the target to a range of 1.25% to 1.5% from near zero before the central bank started the current hiking cycle in late 2015. A rate increase at the March meeting is deemed by most traders to be a near certainty.
The Fed has a mandate of maximizing employment while keeping price rises under control.
"Further gradual increases in the federal funds rate will best promote attainment of both of our objectives," Powell said in the prepared remarks.
While high inflation is considered bad for the economy, the Fed has been troubled by persistently low inflation in recent years. When inflation is low, it's usually seen as a sign of a sluggish economy.
The Fed's preferred measure of inflation climbed 1.7% last year, below the central bank's target of 2%.