The extensive damage done by the financial crisis means that the Federal Reserve should look for “a little more proof than usual” that the economy is strong enough for the central bank to raise rates, Fed Governor Jerome Powell said Wednesday.
Despite the bad news about the jobs market in Friday’s jobs report, Powell suggested that the time to raise rates would come this year, potentially at the Fed’s June meeting.
“The time is coming, and I do expect it will be this year,” Powell said of raising rates in a talk at the Council on Foreign Relations in New York.
Although the March jobs report showed just 126,000 new jobs created and fewer new jobs in January and February than previously thought, Powell noted that Fed officials will have a lot more news to judge by the time of the June meeting, including two more jobs reports plus “a lot more incoming data on just about everything in the economy.” Those reports could show greater strength in the economy.
“I don’t think we need to be in hurry,” Powell said. As a member of the Board of Governors, Powell is a permanent voting member of the Fed’s monetary policy committee.
Powell noted that the Fed faces several challenges in deciding when to tighten monetary policy: It could misjudge the strength of the economy, and “truncate” the healing from the crisis.
Alternatively, it could wait too long, risking high inflation or “frothy” financial markets.
Either way, it has to act early, Powell said, because its stimulus efforts can take years to work through the economy. “You’ve got to start well before you hit the actual goal,” he said.
