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Range Base Holds Firm

--Affirms Likely Dec Rate Increase; To Continue on Gradual Hiking Path
--When Pressed on Tax Reform, Gave Up Little on Internal Fed Thinking
By Jean Yung
     WASHINGTON (MNI) - Jerome Powell, the man picked by President Donald Trump
to lead the Federal Reserve, told U.S. senators Tuesday the economy growing at a
healthy rate and will likely be best served by additional interest rate
increases, including one in December. 
     "I think the case for raising rates at our next meeting is coming
together," the current Fed governor told the Senate Banking Committee at a
hearing to consider his nomination, adding no final decision will be made until
the Federal Open Market Committee gathers on Dec. 12 and 13.
     He also said he expects the U.S. central bank to let maturing bonds roll
off its balance sheet in a passive manner for the next few years until its
holdings reach a new equilibrium size of around $2.5 trillion to $3 trillion,
down from around $4.5 trillion now, and consists mostly of Treasuries. 
     Powell, who has served on the Fed Board for the past five years, is
expected to face little opposition to getting confirmed. Current Chair Janet
Yellen said last week she intends to resign from the Fed board once he is sworn
in.
     His comments Tuesday toed the line on monetary policy under Yellen's
stewardship, and he struck a balanced tone on everything from jobs to inflation
to financial regulation. 
     Policy normalization would continue on a slow and steady path despite
inflation coming in surprisingly short of target this year, he said. Some have
cited idiosyncratic factors for holding down price levels, but the Fed doesn't
really know whether the factors will prove transitory. 
     The Fed "can afford to go more slowly" on raising interest rates if
below-target inflation proves persistent, he said. 
     Turning to the Fed's other mandate, Powell said the current unemployment
rate of 4.1% reflects an economy close to full employment, but lagging labor
force participation for prime age male workers showed there might be more slack
out there. At the same time, "we don't see wages signaling any tightness in the
labor market," he said. 
     A few senators attempted to press Powell to take a stance on the proposed
tax cuts moving through Congress, but the Fed governor stuck resolutely to the
line that without know the final details of the reform, the Fed could not
estimate its likely impact. 
     "We're monitoring these discussions, but it remains unclear exactly what
will pass," Powell said.
     Powell later went only as far as to say he would be worried about an
increase in the debt-to-GDP ratio, which could sharply push up interest rates
and crowd out investment.
     On financial regulation, Powell repeated his opinion that some rules should
be better tailored to individual firms but that overall, the post-crisis
regulations were "tough enough." 
     A rate hike next month would mark the fifth since the crisis era of
near-zero rates and bring the fed funds rate's target range to 1.25% to 1.50%. 
     There is no date set as yet on Powell's confirmation vote. 
--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com
[TOPICS: MMUFE$,M$U$$$,MT$$$$]