Fed's Powell Says He's Looking for Continued Strong Job Growth

  • Powell would like to see wages increasing, pickup in inflation
  • Better to raise early and gradually to avoid going too fast

Federal Reserve Governor Jerome Powell said he will be watching for continued labor-market improvement to guide policy as the U.S. central bank proceeds along a gradual path of interest rate increases.

"We do look at a wide range of things. For me, at the top of the list will be continued progress in the labor market, and with it, continued progress on inflation," Powell told Marketplace radio in an interview Friday. "I want to see continued strong job growth. We’ve had three years of very strong job growth -- I want to see that continue."

The Fed raised interest rates on Wednesday for the first time since 2006. Officials, including Chair Janet Yellen, have stressed that the pace of future hikes will be gradual and data-dependent, and will hinge on continued improvement in the labor market and a pickup in inflation toward the Fed’s 2 percent goal. That’s focused investors’ attention on what measures policy makers are attuned to as they gauge when to next lift rates.

While the job market has been robust, price pressures haven’t achieved the Fed’s target since 2012, based on the central bank’s preferred gauge. Even so, monetary policy works with lags, which made Wednesday’s 25 basis point increase appropriate, Powell said.

"We want this to be a long, extended recovery, and for it to continue for some significant number of more years,” Powell said, noting that waiting too long to raise rates can force the Fed to tighten policy abruptly, potentially disrupting growth and causing a recession. He said the “right way” to ensure continued expansion is to "start now with a very small increase and then move very gradually."

Powell has a permanent vote on monetary policy and is a former venture capitalist and Treasury Department official. His public speeches have mainly been about financial regulation, but he focused entirely on monetary policy and the economy in his interview Friday.

"I would hope that people would take our first, very small rate increase as a sign that the Federal Reserve has confidence in the state of the economy and in the fact that we’ll continue to make progress,” Powell said.