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Powell’s Fed to show policy caution, shun political friction

March 19
09:46 2018

Jerome Powell heads for his first interest rate increase as Federal Reserve Chairman this week with an unanswered question looming above others: could his optimism about the U.S. economy lead to more hikes than markets have prepared for?

Powell’s public comments and Reuters conversations with his Fed colleagues since January, when he was confirmed as chairman, suggest such fears are overblown: Powell, the consensus-builder, may make some tweaks to reflect changing economic conditions but is as committed to gradual, moderate rate increases as his predecessor Janet Yellen who adopted that approach.

The new chairman’s overriding concern will be to sustain one of the longest U.S. recoveries for as long as possible, according to conversations with Fed officials and analysts. But given signs that the economy’s potential has strengthened, that might mean a policy-tightening cycle that lasts longer, with rates going a bit higher than earlier thought.

Powell was widely seen as a choice of continuity when President Donald Trump picked him. He served as one of the Fed governors during the central bank’s transition from crisis-era stimulus to a more balanced approach that led to three rate increases last year in response to steady growth and falling unemployment.

Yet uncertainty over how the 65-year old lawyer and former investment banker would steer the Fed was on full display last month when global stocks sold off briefly after Powell’s first congressional testimony.

Continue Reading at Reuters

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