JACKSON HOLE - Federal Reserve Chairman Jerome Powell on Friday defended the U.S. central bank's push to raise interest rates as healthy for the economy and signaled more hikes were coming despite President Donald Trump's criticism of higher borrowing costs.
The Fed, which began to tighten monetary policy in 2015, has raised rates twice this year and is expected to do so again next month and perhaps once more before the end of the year.
Speaking at a research symposium in Jackson Hole, Wyoming, Powell said he wanted to "explain today why my colleagues and I believe that this gradual process ... remains appropriate."
"The economy is strong. Inflation is near our 2 percent objective, and most people who want a job are finding one ... If the strong growth in income and jobs continues, further gradual increases in the target range for the federal funds rate will likely be appropriate."
Powell's comments were not a direct response to Trump's criticism that he is "not thrilled" with the Fed for raising rates as the Trump administration tries to stimulate economic growth.
But the Kansas City Fed's annual conference here is among the central bank's higher profile annual events, drawing international media attention and an audience including representatives of other nations' central banks.
Trump is "fueling the economy with fiscal stimulus and then asking that you don’t tighten interest rates, but the Fed is normalizing monetary policy, not really tightening - it’s accompanying the recovery and lifting rates up to the point where they are neutral," said Laurence Boone, the chief economist of the OECD, who attended the conference.
"Financial conditions are very good, and (Powell) is tightening in line with those trends," Boone said.
Powell said rate hikes are the best way to protect the U.S. economic recovery and keep job growth as strong as possible and inflation under control.
Traders of interest rate futures barely budged after the speech, keeping their bets on rate hikes in both September and December. Fed funds and eurodollar futures prices indicate that financial markets see the Fed raising rates just once more next year, leaving rates in a range of 2.50 percent to 2.75 percent by mid-2019, up from the Fed's current target of 1.75 percent to 2.00 percent.
Fed policymakers forecast three rate hikes for next year in their most recent projections, published in June.
The research theme at the conference this year involves change in market structure, and Powell used that topic to elaborate on why shifts in concepts like the level of "full employment" and the neutral rate of interest justify gradual rate increases.
He said the Fed's mistakes of the past, such as a misestimation of full employment that allowed inflation to take off in the 1970s, mean the central bank today should not assume its current estimates of those economic variables are precise.
The Fed "has been navigating between the shoals of overheating and premature tightening with only a hazy view of what seem to be shifting navigational guides," Powell said.
With unemployment so low, "why isn’t the (Federal Open Market Committee) tightening monetary policy more sharply to head off overheating and inflation? With no clear sign of an inflation problem, why is the FOMC tightening policy at all, at the risk of choking off job growth and continued expansion?"
The resolution, he said, is to move carefully.
"I see the current path of gradually raising interest rates as the FOMC’s approach to taking seriously both of these risks."