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Powell indicates he'll keep bolstering growth in public debut

[WASHINGTON] Jerome Powell, the new chairman of the Federal Reserve, was expected to paint an optimistic picture of a strengthening US economy and signal that he will continue to bolster that growth when he testifies Tuesday before Congress in his public debut as head of the central bank.

Mr Powell, in prepared testimony released before his remarks to the House Financial Services Committee, said that the job market and business investment continued to strengthen, and that headwinds once holding back the US economy had now turned into tail winds.

But he emphasized that he planned to continue the policies of his predecessor, Janet Yellen, who managed to gradually raise interest rates during her four-year term while still encouraging broad economic growth.

The Fed "will continue to strike a balance between avoiding an overheated economy" and allowing inflation to tick up toward the Federal Reserve's 2 per cent target, Mr Powell said. "Further gradual increase in the federal funds rate will best promote attainment of both of our objectives," he added.

Mr Powell, a member of the Fed's board of governors who was sworn in as chairman earlier this month, faces two days of testimony before the House and Senate, his first public appearance in his new role.

His testimony comes at a critical moment in the economy's trajectory, as growth continues to strengthen and unemployment remains low. Investors are eagerly awaiting signs of how the Fed, under Mr Powell's leadership, will respond and whether it will seek to raise interest rates more quickly than expected.

Mr Powell has taken the helm of the central bank at a time when the economy is nearing the end of its ninth year of expansion and the Fed has been steadily raising its interest rate back to more normal levels, after cutting them to zero to stimulate lending in the wake of the financial crisis.

Those rate hikes are intended to keep the economy from running too hot, while also giving the Fed the capacity to fight a future recession by once again cutting its interest rate.

Investors widely expect the Federal Reserve to raise its benchmark interest rate in March, to a range of 1.5 per cent to 1.75 per cent, with some expecting another quarter point increase in June.

The Fed has forecast three such increases in 2018. But many investors believe the central bank could lift its rate four times this year, especially if the Trump administration's US$1.5 trillion tax cut that took effect in January provides a larger-than-expected boost to the economy and inflation.

Investors are watching carefully for any indication that inflation could lift off faster than they had expected - a sign that the Fed might have to raise rates more quickly than it planned and risk choking off economic growth.