Powell’s optimism could mean higher interest rates

WASHINGTON, July 17, 2018 -- U.S. Federal Reserve Chairman Jerome Powell testifies before the Senate Banking Committee, on Capitol Hill in Washington D.C., the United States, on July 17, 2018. Jerome Powell said on Tuesday that for now, the best way forward for the central bank is to keep gradually raising the federal funds rate. (Xinhua/Liu Jie) (Xinhua/Liu Jie via Getty Images)

Federal Reserve Chairman Jerome H. Powell told Congress this week that the economy is growing “considerably stronger.” And while those words would warrant a hooray from Americans, that phrase coming from Powell is a little more complicated.

Powell is essentially saying that he’s not going to stop raising interest rates even if inflation stays over the Fed’s target.

We’ll know next week how the economy did in the second quarter of 2018, but the better news is that growth likely exceeded an annualized rate of 4 percent. Keep in mind something that I wrote recently — the economy has popped to this level of growth before in recent years only to fall back after a quarter or two.

And the new tariffs that Trump has imposed, on top of aggressive Fed action on rates, could temper this level of growth.

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