Jerome Powell, chairman of the U.S. Federal Reserve, talks during the International Monetary Fund Committee (IMFC) plenary session in Washington, D.C., U.S. (Photographer: Andrew Harrer/Bloomberg)

Powell Says Market Is `Well Aligned' With Fed's Rate Dot Plot

(Bloomberg) -- Federal Reserve Chairman Jerome Powell said financial markets have gotten the message on the U.S. central bank’s plan for gradual interest-rate increases and “should not be surprised” by its actions.

“Fed policy normalization has proceeded without disruption to financial markets, and market participants’ expectations for policy seem reasonably well aligned with policymakers’ expectations,” Powell said Tuesday at a conference sponsored by the International Monetary Fund and Swiss National Bank in Zurich.

“Markets should not be surprised by our actions if the economy evolves in line with expectations,’’ he said, while also noting the normalization of monetary policies in advanced economies “should continue to prove manageable” for emerging-market economies.

U.S. central bankers have raised the benchmark lending rate six times since December 2015, including at their meeting in March, and penciled in two or three more increases this year.

The gradual pace of tightening has kept financial conditions easy, and provided support for continued growth in the labor market and economy while steadily moving inflation back toward the Fed’s 2 percent target. The policy was so well telegraphed that financial conditions eased after the rate hikes.

Powell said the role of U.S. monetary policy “is often exaggerated” as a force contributing to financial conditions in other economies, though spillovers do occur because of the dollar’s role as a widely-used reserve currency.

“I do not dismiss the prospective risks emanating from global policy normalization,” Powell added. “Some investors and institutions may not be well positioned for a rise in interest rates, even one that markets broadly anticipate.”

The Fed chairman also warned that the linkages between monetary policy, asset prices, and the “mood” of global financial markets are not fully understood.

“Risk sentiment will bear close watching as normalization proceeds around the world,” Powell said.

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