Reuters/Joshua Roberts
Jerome Powell testifies before the Senate Banking, Housing and Urban Affairs Committee on his nomination to become chairman of the U.S. Federal Reserve in Washington, U.S., November 28, 2017.
- Federal Reserve Chair Jerome Powell's optimistic outlook on the economy scared Wall Street about the prospect of four interest rate hikes this year.
- "My personal outlook for the economy has strengthened since December," Powell told members of the House Financial Services Committee.
- Stock and bond prices moved lower on Powell's comments, while the dollar rallied.
Jerome Powell's first testimony as Federal Reserve Chair on monetary policy and the economy before Congress is turning out to be more optimistic than many investors expected, prompting Wall Street to worry the central bank chief may be gearing up for a faster pace of interest rate increases.
Fed projections released in December pointed to policymakers' own forecasts of around three rate hikes for 2018, following three rises in 2016 that brought the official policy rate to a 1.25%-1.5% range.
However, Powell appears to have become substantially more upbeat about the nation's economic prospects since December, following the passage of new tax cuts and signs of strong overseas growth.
"What we've seen is incoming data that suggests a strengthening in the economy," he told members of the House Financial Services Committee.
His rosy outlook was enough to prompt markets to suddenly become nervous about the prospect of four rather than three rate rises this year. Stock markets veered lower, while yields on the 10-year Treasury note, which move opposite to its price, climbed 2.9%. The US dollar jumped 0.56% against a basket of major currencies.
"We've seen continuing strength in the labor market, we've seen some data that in my case will add some confidence to my view that inflation is moving up to target," Powell said. "We've also seen continued strength around the globe and we've also seen fiscal policy become more stimulative."
Powell stopped just short of committing to boosting his own estimates, but dropped strong hints:
"Each of us is going to be taking the developments since the December meeting into account and writing down our new rate paths as we go into the March meeting and I wouldn't want to prejudge that," he said.
"My personal outlook for the economy has strengthened since December."
Markets Insider