Fed expects economic gains to prompt rate hikes

Associated Press

WASHINGTON

The Federal Reserve says it expects that the ongoing strength of the U.S. economy will warrant gradual increases in interest rates this year, delivering the same steady-as-it-goes message under new leader Jerome Powell as it had provided under Janet Yellen.

The Fed’s projection on rate hikes came with the release Friday of its semi-annual monetary report to Congress. Powell will testify on the report before the House Financial Services Committee on Tuesday, making his first public appearance since taking over as chairman earlier this month.

The report stated that the Fed expects steady economic gains will warrant “further gradual increases” in the Fed’s benchmark rate. But it said the rate was likely to remain low enough to stimulate the economy over the next two years.

Separately, Loretta Mester, president of the Fed’s Cleveland regional bank, suggested that the central bank should embark this year on a review of its operating strategies. The Fed seeks to manage interest rates to promote maximum employment and stable prices, which it defines as inflation rising at an annual rate of 2 percent.

“After coming through the financial crisis and Great Recession, the economy has returned to normal and monetary policy ... is normalizing,” Mester said in remarks to a conference in New York sponsored by the University of Chicago Booth School of Business. “This suggests to me that it may be appropriate later this year to begin an assessment of our current monetary policy framework and alternatives.”