THE U.S. Federal Reserve is expected to continue gradual interest rate hikes this year on the expectation of stronger economic outlook.

“The [Federal Open Market] Committee expects that the ongoing strength in the economy will warrant further gradual increases in the federal funds rate,” said the semiannual Monetary Policy Report to the Congress released by the Fed on Friday.

The report was released before new Fed chair Jerome Powell’s first Congress testimony which was scheduled Feb. 27.

“The economic expansion continues to be supported by steady job gains, rising household wealth, favorable consumer sentiment, strong economic growth abroad, and accommodative financial conditions,” said the report.

It noted that federal fiscal policies, including the US$1.5-trillion tax cuts and increased budget spending for fiscal years 2018 and 2019, would likely give a “moderate boost” to economic growth this year.

The report, which used the same Fed forecasts released in December, stated that Fed officials expect three interest rate hikes this year.

Despite the recent market turbulence, the Fed still held that overall vulnerabilities in the U.S. financial system remain moderately balanced.

However, it warned that valuation pressures continue to elevate across a range of assets, including equities and real estate.

In their public remarks, Fed officials have downplayed the impact of recent market volatility, saying they would stick to their forecast of stronger growth outlook and gradual rate hiking pace.

According to the minutes for the Fed’s policy meeting Jan. 30 and 31, Fed officials have become more confident about the growth and inflation outlook, paving the way for gradual interest rate hikes in the future.

A number of officials had marked up their forecasts for economic growth in the near term, in view of the accommodative financial conditions, big tax cuts and solid domestic and overseas economic data.

The Fed’s key policy rate is currently in a range of 1.25 percent to 1.5 percent. The Fed raised rates three times last year with the last hike occurring in December.

However, investors have grown concerned that signs of rising wage and inflation pressures might prompt it to speed up the rate hikes.

Those fears were one of the factors leading to a series of stomach-churning days in the stock market earlier this month, a sell-off that began after the Labor Department reported that wage gains had accelerated in January.

The report noted that even with the sell-off in recent weeks, the valuation of stocks, judged by the stock price related to company earnings, remained near the highest levels seen since the late 1990s.

Many economists now believe the Fed will end up raising rates four times this year, with the first hike likely to come in March, which will be Powell’s first monetary-policy meeting as chairman. (SD-Agencies)