WASHINGTON, D.C.: President Donald Trump’s pick to lead the US Federal Reserve said Tuesday there is a strong case for raising the benchmark interest rate at the central bank’s December policy meeting.
In an unusually direct comment for normally-reticent central bankers, Fed governor Jerome Powell told the Senate Banking Committee, “I think that the case for raising interest rates at our next meeting is coming together.”
Beyond that surprise, however, Powell solidified his image as the centrist, continuity choice to take over the helm of the Fed from current chair Janet Yellen, repeating his commitment to ease some bank regulations, while keeping big institutions under scrutiny, and largely steering clear of high-stakes political issues like tax reform.
While he stressed that the final decision on raising the key lending rate will be made at the December 12-13 monetary policy meeting, Powell said “conditions are supportive of doing that.”
While the statement was out of the ordinary, the opinion was not, as Fed officials have been saying interest rates are expected to rise gradually, and analysts are virtually unanimous in expecting the third rate hike of the year to come next month.
Although inflation has remained far below the Fed’s two percent target, and wage pressures are largely absent, other economic data point to solid growth and unemployment has declined to 4.1 percent supporting the Fed’s gradual rate increases.
Powell also predicted that the economy is likely heading for an unemployment rate below the four percent, something unseen since late 2000.
The mixed picture has complicated the Fed’s policy decisions, but Powell said in his testimony that with a strong economy “it is now time to be normalizing interest rates” gradually.
Trump early this month nominated Powell to replace Yellen, who will leave in February after just one term. No first-term US president has replaced a sitting Fed chair in 40 years.
Powell said the low interest rate policy under her leadership have served the economy and the country well.
Easing bank regulation
Yellen’s departure means Trump will be able to name the majority of the seven Fed board members, allowing him to put his mark on monetary policy and a key US bank regulator.
Powell is seen as a centrist choice for the role compared to some of the more controversial candidates who were in the running. But he is seen as more favorable to easing tough regulations on banks imposed in the wake of the 2008 financial crisis which Trump says are inhibiting lending.
In his testimony, Powell stressed the Fed’s ongoing efforts to tailor regulation to ensure it is not overly burdensome, especially on smaller banks.