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Employment Likely Won't Push Interest Rates

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Fed: Employment probably won’t push interest rates higher

NEW YORK – Oct. 3, 2018 – U.S. Federal Reserve Chairman Jerome Powell said on Tuesday that he doesn't see evidence that the labor market is at risk of overheating, which puts pressure on businesses to increase prices that, in turn, spark a higher inflation rate.

Powell's statement pushes back against critics that say the central bank's projections of sustained, low unemployment underestimate the prospect of inflation rising significantly above the Fed's 2 percent target. Fed officials' individual projections released last week envisioned an unusually favorable set of conditions in which the unemployment rate holds below 4 percent over the next three years but inflation never rises much above the Fed's 2 percent target.

Powell conceded that the Fed's outlook is "remarkably positive" in an address to business economists Tuesday in Boston, and noted that the U.S. hasn't witnessed such a sustained spell since 1950. He nevertheless asserted that these projections are not too good to be true.

His comments suggest that he sees little urgency to accelerate the central bank's quarterly interest rate increases or to signal a more restrictive policy path ahead. As a reason for why inflation might be different this time around, Powell cited improvements in how central banks conduct monetary policy in recent decades – primarily by anchoring consumers' and businesses' expectations of future inflation – that have reduced, but not eliminated, the effects of tighter labor markets on inflation.

Source: Wall Street Journal (10/02/18) Timiraos, Nick; Kiernan, Paul

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