Fed's Powell: interest rate hike "fairly soon"

May 26, 2016, 3:39 PM EDT
(Source: Kurtis Garbutt/flickr)
(Source: Kurtis Garbutt/flickr)

Fed Governor Jerome Powell indicated that an interest rate hike may be appropriate "fairly soon."

Reuters reports:

A U.S. rate hike may come "fairly soon" if data confirm the economy is continuing to grow and labor markets are still tightening, Federal Reserve Governor Jerome Powell said on Thursday in remarks that may help tee up higher rates as soon as mid-June. Powell said the economy remains on a "solid footing" and that he views ongoing job growth and evidence of rising wages as being more important than recent weakness in consumer spending and business investment. "There are good reasons to think that underlying growth is stronger than these recent readings suggest," Powell said in prepared remarks to be delivered at the Peterson Institute for International Economics in Washington. "Labor market data generally provide a better real-time signal of the underlying pace of economic activity." "All told, labor market indicators show an economy on a solid footing," Powell said, adding that the U.S. central bank was on track to meet its full employment and 2 percent inflation goals. "If incoming data support these expectations, I would see it as appropriate to continue to gradually raise the federal funds rate."

MarketWatch writes:

Powell said recent evidence is that the recession has left behind lasting damage. He said analysis suggests that a third of the time, there’s no permanent supply-side damage; a third of the time, there’s a reduction in the level of potential output but not the growth rate; and a third of the time, there’s a reduction in both the level of output and the growth rate. “Unfortunately, recent experience suggests that the United States is at risk of falling in the last category,” he said.

CNBC notes:

His comments follow a string of hawkish remarks from Fed officials that have boosted expectations for rate increases this year. Markets are pricing a 30 percent chance of a hike in June, according to the CME Group. The probability of an increase rises to 58 percent in July. The minutes of the Federal Open Market Committee's April meeting showed it will likely hike in June if economic data point to stronger second-quarter growth. Officials will also monitor employment trends and whether inflation moves closer to the central bank's target. Powell added Thursday that he sees reduced risks to the U.S. from the global economy. However, he said the British referendum on European Union membership in June and building Chinese debt bring some concerns. Earlier Thursday, St. Louis Fed President James Bullard told reporters he believes markets "read the minutes correctly." Market expectations for a hike spiked after their release. The Fed's policymaking committee next meets June 14 and 15.