WASHINGTON (AP) – New Federal Reserve Chairman Jerome Powell delivered a message Tuesday that wasn't quite what Wall Street had expected: The US economy is doing well, maybe even better than he thought late last year.
Powell emphasized in his first Congressional testimony that the central bank plans to raise rates gradually. Nonetheless, his growing optimism about the economy rattled investors. Treasury yields climbed and stocks fell amid fresh speculation that the Fed would accelerate the pace of hikes in its benchmark policy rate this year. The Dow Jones industrial average closed down 299 points, or 1.2 percent, to 25,410.03.
The Standard & Poor's 500 index fell 35.32 points, or 1.3 percent, to 2,744.28. The Nasdaq composite fell 91.11, or 1.2 percent, to 7,330.35.
The Fed raised rates three times in 2017 and had projected in December that it would raise rates another three times this year. However, many private economists said they now expected the Fed will boost rates four times this year rather than three.
“My personal outlook for the economy has strengthened since December,” Powell said when asked whether the Fed might boost its projection for rate hikes from three to four when it updates its outlook next month.
Powell would not say whether the Fed's projection for rate hikes would change. But he noted a number of ways that the economic outlook has improved since December, including stronger data on growth and inflation, the passage of a $1.5-trillion tax cut in late December and an increase in government spending in a January budget deal.
Powell said that he would not speculate on whether the number of hikes would be boosted since any change will depend on the individual forecasts of each of the 15 members of the Fed's policy committee.
But private economists said they saw Powell's comments as a strong signal that the Fed will be raising its rate forecast at its next meeting in March.
Powell's comments came as he delivered the Fed's semi-annual monetary report to the House Financial Committee. He will appear before the Senate Banking Committee on Thursday.
His reception before the House panel stood in marked contrast to how the committee interacted with Janet Yellen. Republicans often challenged Yellen, a Democrat, during exchanges in which she was often interrupted by male lawmakers who dismissed her answers on a wide variety of topics.
A frequent flash-point was Yellen's objection to GOP-sponsored legislation to limit the Fed's independence by requiring the Fed to follow a specific monetary rule in setting interest-rate policies.
Powell, a Republican tapped by President Donald Trump in November when the president decided against giving Yellen a second term, expressed support in his opening statement for using various monetary formulas to help guide setting interest rates.