Fed chair Jerome Powell sees 'no evidence' of overheating in USA economy

Fed chair Jerome Powell sees 'no evidence' of overheating in USA economy

Federal Reserve Chairman Jerome Powell said on Thursday there was no evidence the USA economy is overheating, and labor markets may still have room to improve as the central bank sticks with a gradual pace of interest rate increases.

"There's no evidence that the economy's now overheating", Powell said before the Senate Banking Committee on Thursday.

But Powell said that the government's fiscal policy was now "more stimulative", which would help to boost inflation, which has been chronically low in recent years.

Germany's 10-year yield fell one basis point to 0.64 percent, the lowest in five weeks.

The unemployment rate in US has dropped to 4.1 percent, which Powell considered a level "at or near or even below most estimates of the natural rate of unemployment".

Powell also acknowledged that there was "no evidence that the economy is now overheating". The January nonfarm payrolls report showed average hourly earnings accelerating by 2.9 percent, but the central bank rarely moves its position based on a single month's data. "In the (FOMC's) view, further gradual rate increases in the federal funds rate will best promote attainment of both of our objectives".

Powell, 65, gave his first congressional testimony as chairman this week. "He may not have such an easy time today with the Senate Banking Committee". The meeting of the rubber-stamp parliament's 3,000-plus delegates is mainly ceremonial but China's communist leaders use it to publicize new initiatives and set the tone for the year's development plans. "The balance of risks is shifting for the Fed".

The yield on the 10-year Treasury note was 2.86% at 10.42am in NY, compared to Tuesday's 2.92% peak. US stock indexes fell and the dollar was stronger against a basket of currencies.

The S&P 500 Index, underlying reference of the $275bn SPDR S&P 500 ETF (SPY US), fell 10% between 26th January and 8th February.

In his testimony before the House Financial Services Committee on Tuesday, Powell said that his outlook for the economy has strengthened since December last year, triggering market speculation that the Fed chair was open to faster interest rate hikes this year.

The nervousness on the financial markets may have been compounded by news that striking teachers in West Virginia were denouncing a sellout agreement announced Tuesday by teachers' union leaders and planning to defy their call for a return to work on Thursday. Powell, a Republican, has been on the Fed's seven-member board since 2012.

Fed officials, particularly at the regional level, have lately focused their research on parts of the economy left behind during the recovery from the crisis, and some macroeconomic research has suggested rising inequality could impair overall growth. "I wouldn't want to prejudge that new set of projections", Powell said.

In his second congressional testimony, Powell also said there is no evidence the US economy is now overheating, weakening the case for faster interest rates. "We have seen continuing strength from the labour market, and we have seen some data which will add some confidence to my view that inflation is moving up to target, gradually reducing monetary policy accommodation will sustain a strong labour market whilst fostering a return of inflation to 2%".

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