November 29, 2016 / 6:05 PM / in a year

UPDATE 1-Case for rate hike 'clearly strengthened' this month -Fed's Powell

(Adds election context, market expectations, comments)

By Jonathan Spicer

Nov 29 (Reuters) - The case for raising U.S. interest rates has “clearly strengthened” since early November, before Americans elected Republican Donald Trump as president, a Federal Reserve governor said on Tuesday in the latest signal that a policy tightening is imminent.

In an upbeat speech on the U.S. economy’s prospects, Fed Governor Jerome Powell said that while the central bank has so far been wise to be patient on policy, moving too slowly as inflation continues to rise could leave it scrambling.

“Incoming data show an economy that is growing at a healthy pace, with solid payroll job gains and inflation gradually moving up to 2 percent,” Powell told the Economic Club of Indiana in Indianapolis in his first public comments on policy since the Nov. 8 election.

“In my view, the case for an increase in the federal funds rate has clearly strengthened since our previous meeting earlier this month,” he said of the Fed’s Nov. 1-2 decision to leave rates steady at 0.25-0.5 percent, where they have been since last December.

The election of Trump shocked pollsters and sent stocks and Treasury yields soaring as investors anticipated economic stimulus in the way of infrastructure spending, tax cuts, and fewer regulations on businesses.

Investors and economists see about a 90 percent chance of a Fed rate increase at a mid-December policy meeting, and at least two more hikes next year, depending on what Trump and the Republican-controlled Congress deliver. Economists also warn that Trump’s campaign promises to renegotiate or halt international trade deals would reverse any economic gains.

Powell, a centrist and one of five influential governors at the central bank, said more fiscal spending on public infrastructure may helpfully raise private-sector productivity, which has been mysteriously low, holding back economic growth.

Yet growth has “clearly strengthened” since the first half of the year, when it was just more than 1 percent, Powell said. The Commerce Department said earlier on Tuesday that gross domestic product growth was 3.2 percent in the third quarter.

“I expect that the economy will continue on its path of the last few years, with real GDP growth of about 2 percent, strong job gains, a tightening labor market, and inflation moving up toward our 2 percent objective,” the Fed governor said. (Reporting by Jonathan Spicer; Editing by Meredith Mazzilli)

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