Fed Chairman Jerome Powell attended the Federal Open Market Committee meeting Wednesday. As expected he hiked interest rates by a quarter-point and intimated at least two more rate hikes were to follow.
Below is a synopsis of the Fed’s comments and my interpretation:
In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 1-1/2 to 1-3/4 percent. The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation.
I believe it is important that the Fed Chairman Powell pointed out that Fed policy remains accommodative. The Fed funds rate still remains below its normalized level of 2 percent, and has practically been accommodative since the Financial Crisis of 2008. The 239,000 jobs added in January showed signs the economy was experiencing out-sized growth. Much of that growth was likely due to the Fed’s accomodative monetary policy over the past decade.
The February jobs report practically confirmed strong growth in the economy. Jobs grew by 313,000 and unemployment was 4.1 percent – the same as January’s. Unemployment is below the 5 percent threshold considered to be full employment, and the economy could be at risk of overheating. Unemployment fell while the labor participation rate increased to 63.0 percent from 62.7 percent in January and 62.9 percent in the year earlier period. This could be interpreted as a sign of job market strength, given that retiring baby boomers are putting downward pressure on the participation rate.