Second rate increase may be appropriate fairly soon, Fed´s Powell says

A second interest rate hike in the US may be appropriate fairly soon, if the economic data continued to live up to expectations, one of the Federal Reserve´s top officials said.

"If incoming data continue to support those expectations, I would see it as appropriate to continue to gradually raise the federal funds rate. Depending on the incoming data and the evolving risks, another rate increase may be appropriate fairly soon", US Fed governor Jerome Powell told an audience at the Peterson Institute in Washington DC, according to prepared remarks.

Powell´s near-term "base-line" expectation called for gross domestic product to expand at a pace of about 2%.

With a view to confirming his view, the central banker, who wielded a vote on the Federal Open Market Committee in 2016, said it would be important to see "a significant strengthening in growth in the second quarter after the apparent softness of the past two quarters", alongside further sustained strength is US labour market indicators - including wage inflation.

The policymaker also referenced the risks inherent in running the economy 'too hot' - relative to its potential rate of growth - even if price pressures, that is to say, inflation, did not move "meaningfylly above target".

Several factors argued in favour of pursuing a gradual pace of tightening, including: the asymmetry of risks at the zero lower bound [for interest rates]; downside risks from weak global demand and geopolitical events; a lower long-run neutral federal funds rate, and the apparently elevated sensitivity of financial conditions to monetary policy.

"Uncertainty about the location of supply-side constraints provides another reason for gradualism."

In talking about 'supply-side' risks Powell was referring to the possiblity that the last recession might have inflicted lasting damage on the US economy.

"What if the pessimists are right and productivity growth remains low for another decade, or indefinitely? The consequences would include lower potential growth and relatively lower living standards. Our longer-term fiscal challenges would be significantly greater."