Higher interest rates are the best way to protect the US recovery, says Fed chairman

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The Federal Reserve's steady increases in interest rates are the best way to protect the US economic recovery and keep job market growth as strong as possible and inflation under control, the president said on Friday. of the US central bank, Jerome Powell.

Fed Chairman Jerome Powell (Photo: Aaron P. Bernstein / Reuters) Fed Chairman Jerome Powell (Photo: Aaron P. Bernstein / Reuters)
Fed Chairman Jerome Powell (Photo: Aaron P. Bernstein / Reuters)
Endorsing the Fed's monetary policy stance a few days after US President Donald Trump criticized high interest rates, Powell used the annual Jackson Hole symposium to "explain today why my colleagues and I believe this gradual process. ..continued appropriate. "

"The economy is strong. Inflation is close to our 2% target and most people who want a job are finding a ... If strong growth in income and the labor market continues, more gradual increases in the target for the interest rate will probably be appropriate. "

Powell's remarks were not a direct response to Trump's criticism that he is not "excited" about Fed interest rates as he tries to boost economic growth. However, the annual conference of the Kansas Fed is among the main annual events of the central bank, drawing the attention of the international media with a hearing that includes representatives of the central banks of other countries.

This year's discussion topic involves changes in the structure of the market and Powell used this topic to explain why changes in concepts such as the level of "full employment" and the neutral interest rate justify gradual increases in interest rates.

He said the Fed's past mistakes, such as the misleading estimate of full employment that allowed inflation to accelerate in the 1970s, mean that the central bank today should not assume that its current estimates of these economic variables are accurate.

The Fed "has navigated through a series of overheating and premature tightening with just a vague view on what appears to be changing navigation maps," Powell said.

With unemployment so low, "Why (Federal Open Market Committee) is not tightening monetary policy further to avoid overheating and inflation?" Without a clear signal of an inflation problem, why FOMC is tightening monetary policy, at the risk of stifling employment growth and continued expansion? "

The solution, he said, is to act with care.

"I see the current trajectory of gradually raising interest rates as Fomc's approach to taking both risks seriously."

The Fed is expected to raise the interest rate in September and maybe again in December, continuing what it refers to as "normalization" in 2019.

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