(Bloomberg) -- Federal Reserve Chairman Jerome Powell said he sees no signs the U.S. economy is overheating even as the outlook for growth strengthens and the labor market tightens.
During congressional testimony Thursday, he reiterated the central bank will continue to raise rates gradually to keep unemployment and inflation in balance.
“By continuing to gradually raise interest rates over time, we're trying to balance those two things and achieve inflation moving up to target but also make sure the economy doesn't overheat,” Powell told the Senate Banking Committee in his second appearance before lawmakers this week. He added: “There's no evidence the economy is currently overheating.”
Powell also said he doesn't see a tightening labor market causing wages to hit “a point of acceleration.”
“I would expect that some continued strengthening in the labor market can take place without causing inflation,” he said. “We don't see any strong evidence yet of a decisive move up in wages.”
Powell, 65, gave his first congressional testimony as chairman this week. On Tuesday he told members of the House Financial Services Committee his outlook for the economy had strengthened since December, causing investors to increase slightly the odds they see for a fourth interest-rate increase this year. In their most recent set of projections, Fed officials in December penciled in three hikes in 2018. They meet again later this month.
Stocks were down 1 percent in New York trading Thursday for their third consecutive day of losses. The yield on the 10-year Treasury note was 2.83 percent at 1:07 p.m. in New York compared with Tuesday's 2.92 percent peak.
Investors are taking the measure of the Powell Fed as it debates how quickly to raise interest rates with an economy that is growing steadily and receiving new stimulus from tax cuts and spending increases signed by President Donald Trump in December. Inflation remains under the central bank's 2 percent target. A jobless rate of 4.1 percent is its lowest since 2000 and below what Fed officials view as it's long-term sustainable level.
Data released earlier Thursday showed real disposable income in the U.S. rose the most since 2015, indicating increased spending power may boost the economy this quarter. Filings for unemployment also dropped last week to the lowest level in almost five decades, providing more evidence of a tightening U.S. labor market.
Powell said the economy was “strong,” with the recent tax cuts adding “meaningfully to growth for at least the next couple of years.”
“The bigger question is how much it will add to longer-run growth,” Powell said. There, he added, the impact at this point was “highly uncertain.”
Powell, who was sworn in February 5, was prodded by Massachusetts Democrat Elizabeth Warren into saying he would consider a change in how the Fed might lift the cap on asset growth imposed earlier this year on Wells Fargo Corp. as a penalty for abusive sales practices. The sanction can be lifted by staff, but Warren wants the Fed's Board of Governors to make any such decision in a formal vote.
Other senators tried to draw Powell into the political debates over trade barriers and immigration. While declining to comment directly on administration policies, he said immigration benefits potential economic growth through the supply of labor. On trade, he said he aligned himself with former Fed Chairman Ben Bernanke's views.
“As Chairman Bernanke said, the tariff approach is not the best approach, the best approach is to deal directly with the people who are directly affected, rather than falling back on tariffs,” Powell said. “But again, these are not issues that are consigned to us, they're really for you and for the administration.”
Soon after Powell's hearing ended, President Donald Trump announced the U.S. plans to impose 25 percent tariffs on steel imports and 10 percent on aluminum, and expects to sign a formal order next week.
--With assistance from Shobhana Chandra Shelly Hagan and Jeanna Smialek
To contact the reporter on this story: Christopher Condon in Washington at ccondon4@bloomberg.net.
To contact the editors responsible for this story: Brendan Murray at brmurray@bloomberg.net, Alister Bull
©2018 Bloomberg L.P.
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