Federal Reserve Chairman Jerome Powell said on Thursday the U.S. economy does not appear to be running hot, even as the influential head of the New York Fed suggested a faster pace of interest rate increases may still be in the offing for 2018, APA reports quoting Reuters.
“There is no evidence the economy is overheating,” Powell told the Senate Banking Committee in his second appearance in Congress this week, saying he expects the Fed to stick with a “gradual” pace of monetary policy tightening.
But in remarks at an event in Sao Paulo, Brazil, New York Fed President William Dudley said “gradual” could still apply to a scenario in which borrowing costs were raised four times this year, instead of the three moves Fed policymakers projected when they issued their last set of economic projections in December.
Yet the Fed officials’ comments were overshadowed by President Donald Trump’s announcement of a plan to raise tariffs on steel and aluminum imports, the sort of move Fed policymakers have warned about since the Republican took office last year.
Such action, and the risk of retaliation by trading partners, could cloud the U.S. economic outlook and derail the global recovery currently benefiting the United States.
Traders of federal funds futures trimmed bets on a fourth rate increase this year after Trump's announcement. U.S. stock indexes fell sharply, with the S&P 500 .SPX index down about 1.3 percent in a third consecutive day of losses.
In his testimony, Powell described trade as a “net positive” while conceding it created some losers in the economy, and said “the tariff approach is not the best approach. The best approach is to deal directly with the people who are affected rather than falling back on tariffs.”
The Fed is expected to increase rates at its March 20-21 policy meeting. Policymakers will also issue fresh forecasts that will indicate whether the core of the rate-setting Federal Open Market Committee has shifted its view.
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