Strong US economy to sustain rate hikes, says Fed chief

WASHINGTON — Federal Reserve chairman Jerome Powell told lawmakers Tuesday that strong economic growth will keep the central bank on a path to gradually raise interest rates. But he noted that President Donald Trump’s get-tough trade policies run the risk of dampening future growth if they lead to permanently higher tariffs.

Delivering his twice-a-year report on monetary policy to Congress, Powell gave an upbeat assessment of the economy’s prospects. He said the economy’s performance has enabled the Fed to dial back the “extra boost” it began implementing a decade ago to help lift the economy out of the Great Recession.

The Fed’s plan for raising rates slowly is “running smoothly,” Powell said. And the central bank expects the job market will remain robust and inflation will hover near the Fed’s two percent target over the next several years.

“Our policies reflect the strong performance of the economy and are intended to help make sure that this trend continues,” Powell said before the Senate Banking Committee.

Private economists said that Powell’s remarks sent a clear signal that the Fed, which has already boosted rates twice this year, expects to remain on its current projected path of raising rates another two times this year.

“Although trade tensions remain a downside risk, we continue to expect strong activity growth and rising inflation to prompt the Fed to raise interest rates in September and December and twice more in early 2019,” said Andrew Hunter, US economist at Capital Economics.

Powell faced a number of questions on trade, with both Democratic and Republican senators seeking criticism of the Trump administration’s policies of imposing punitive tariffs on billions of dollars in foreign imports. The moves so far have triggered retaliation in China and other nations slapping retaliatory tariffs on US goods.

Senators Jon Tester of Montana and Heidi Heitkamp of North Dakota, two Democrats up for re-election this year in states Trump carried, were highly critical of the tariffs.

“We can’t afford to put our heads in the sand and ignore the impact of the president’s policies on our economy,” Heitkamp said.

Republican Sen. Pat Toomey of Pennsylvania noted that Fed officials had reported a growing number of business contacts cutting back on investment spending because of growing uncertainty about trade.

At first, Powell sought to avoid directly answering a question of the possible impact of Trump’s approach to trade by saying trade was not an issue the Fed could control. But when pressed, he said that if Trump’s effort “results in lower tariffs for everyone, that would be a good thing. If it results in higher tariffs, that would be bad for our economy.”

The Fed chairman cited trade and fiscal policy, including last year’s big tax cut, as among the uncertainties that could alter the Fed’s economic forecast.