Fed's Powell must take US out of last recession, avert next one

FOR the first time since the collapse of Lehman Brothers in 2008, a sitting chair of the US Federal Reserve may well get to complete the normalisation of America's central bank policy. But while guiding the US economy out of the global financial crisis may have been a hairy task for his predecessors, Fed chairman Jerome Powell could face the much-trickier challenge of averting the next crisis.

The Fed's policymaking body, the Federal Open Market Committee, is widely expected to raise its short-term interest rate target by 25 basis points when it meets this week. This will take the policy range to 1.5 per cent to 1.75 per cent, a high not seen since October 2008.

The data suggests that a gradual but rising stance on rates is appropriate. US gross domestic product growth is hovering around a steady 2.5 per cent, which is better than other developed Western economies. Unemployment of 4.1 per cent is the lowest since the last crisis, and wage growth has been improving, albeit at a puzzlingly slow pace. Core inflation, which excludes fuel and food, is not worryingly low at about 1.5 per cent.