Powell Set to Testify Before House Panel on Interest Rates, Growth Outlook

07/18/18 05:44 AM EDT
By Nick Timiraos 

Federal Reserve Chairman Jerome Powell returns to Capitol Hill on Wednesday for a second day of testimony. Markets will be looking for clues about what he meant when he qualified the Fed's plans to gradually raise interest rates by adding the words "for now" to his prepared remarks Tuesday.

His two hours of testimony before the Senate Banking Committee on Tuesday revealed some unease among lawmakers in both parties with the direction of President Donald Trump's trade policies, and Mr. Powell added some words of caution, too, without commenting on the policy details.

Mr. Powell also faced questions from Democrats over the Fed's recent efforts to simplify some financial regulations.

He is scheduled to begin addressing the House Financial Services Committee Wednesday at 10 a.m. EDT, first delivering the same prepared testimony he presented Tuesday and then taking lawmakers' questions.

Some Republican House members have criticized the Fed in recent years for the use of new facilities that enabled the central bank to guide short-term interest rates higher while maintaining a much larger portfolio of bonds and other assets than existed before the 2008 financial crisis.

Mr. Powell offered a pre-emptive defense of those tools in a 63-page report released before the hearing and in his testimony. The Senate hearing on Tuesday didn't include discussion of the topic, which could feature more prominently on Wednesday.

On Tuesday, Mr. Powell affirmed the Fed's plans to continue with gradual rate increases, and he said it was too soon to say if trade disputes might interfere with those plans. The central bank's rate-setting committee "believes that -- for now -- the best way forward is to keep gradually raising" its benchmark short-term rate, he said.

The addition of the condition "for now" to Mr. Powell's statement was new, emphasizing that policy decisions aren't on autopilot. The phrase also signaled less certainty about the rate path as the Fed raises its benchmark rate toward a so-called neutral level that neither spurs nor slows growth.

The Fed raised that rate in June by a quarter percentage point to a range between 1.75% and 2%, the second such increase this year. Most Fed officials penciled in a total of at least four rate increases this year and three more next year.

Most of them expect they will need to raise the rate to a neutral level, which could be reached in the next year, but they haven't resolved whether or how much higher to go after that.

The Fed expects recent tax cuts and an increase in federal spending to boost spending and investment at a time when the labor market is already tight. This has put officials on the lookout for signs the economy could be overheating.

Intensifying trade disputes, on the other hand, could hurt business confidence and roil financial markets if U.S. companies face higher prices or supply-chain disruptions.

Write to Nick Timiraos at nick.timiraos@wsj.com


(END) Dow Jones Newswires

July 18, 2018 05:44 ET (09:44 GMT)

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