New Fed Chief Sees Interest Rates Continuing To Rise As Economy Strengthens : The Two-Way The central bank remains on track to boost rates gradually, Jerome Powell told Congress on Tuesday in his first testimony as Fed chairman. He said he has seen the economy picking up since December.
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New Fed Chief Sees Interest Rates Continuing To Rise As Economy Strengthens

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New Fed Chief Sees Interest Rates Continuing To Rise As Economy Strengthens

New Fed Chief Sees Interest Rates Continuing To Rise As Economy Strengthens

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ARI SHAPIRO, HOST:

The new Federal Reserve Chairman Jerome Powell delivered an upbeat assessment of the U.S. economy to Congress today. That's got some people thinking the Fed might raise interest rates faster, as NPR's John Ydstie reports.

JOHN YDSTIE, BYLINE: Powell was at the House Financial Services Committee to deliver the Fed's twice-yearly assessment of the U.S. economy. It was his first appearance before lawmakers since taking over at the Fed three weeks ago. And Powell indicated his support for a gradual increase in interest rates. That's a strategy the Fed adopted under former Chair Janet Yellen to get official rates to more normal levels after holding them near zero to support the economy after the financial crisis. But Powell seemed to suggest a more robust U.S. economy might mean the Fed will move rates up faster.

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JEROME POWELL: We've seen continuing strength in the labor market. We've also seen continued strength around the globe. And we've seen fiscal policy become more stimulative.

YDSTIE: Fiscal policy as in the big tax cut and the recent budget agreement that will substantially boost government spending. Tight fiscal policy was a headwind slowing the economy in past years. But now, Powell said, it's become a tailwind. And the new chairman suggested all that economic stimulus would move inflation higher.

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POWELL: We've seen some data that will add some confidence to my view that inflation is moving up to target.

YDSTIE: Inflation has been running below the 2 percent level the Fed believes is best for the economy. But investors saw something to worry about in Powell's sunny comments. They thought it made it more likely the Fed will increase rates faster. Right now the Fed has signaled three quarter-point rate hikes for 2018, the first likely to come at the next Fed meeting in March. Futures markets showed the odds of a fourth rate hike rising in response to Powell's comments. Stocks, which benefit from lower rates, fell sharply today, while interest rates rose in the bond market.

John Ydstie, NPR News, Washington.

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