MNI POLICY: Fed's Powell: Need Rates to Move Gradually Higher

By Jean Yung

     WASHINGTON (MNI) - Federal Reserve Chair Jay Powell on Wednesday capped off

a week of public speaking by reiterating the need to raise interest rates

gradually toward a neutral level in light of a "remarkably positive set of

economic circumstances."

     The following are the key points from his comments at a conference in

Washington. 

     --Very accommodative policy is no longer appropriate in the current

environment, which calls for interest rates to "very gradually" move toward

neutral. "We may go past neutral, but we're a long way from neutral at this

point." 

     --The Fed expects to continue to see a strong economy, low unemployment,

and stable prices in the foreseeable future until "some exogenous event"

disrupts the outlook. "There's no reason to think this cycle can't continue for

quite some time, effectively indefinitely." With financial stability risks

staying in a moderate range, Powell speculates that the cause of the next

recession will not look like the last one, maybe "a cyberattack or some kind of

global event." 

     --Not yet detecting impact from tariffs and trade uncertainty on growth,

business investment, hiring or other economic data  

     --Public confidence in central banks and their commitment to stable prices

has "reduced the sensitivity of inflation to changes in unemployment," rendering

the Phillips Curve quite flat. 

     --Why wage growth isn't faster in a very tight labor market remains a

"mystery," but the Fed does not think the economy is in imminent danger of wage

increases driving price increases. 

     --The labor force participation rate has rebounded to a "good solid number"

but certain age cohorts have not fully recovered to pre-crisis levels. However,

taken alongside a range of other job market indicators, it points to full

employment. 

--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com