Fed chair signals gradual rate hikes in tame inflation era

WASHINGTON (AP) - Federal Reserve Chairman Jerome Powell says the Fed will likely keep raising short-term interest rates at a gradual pace, partly because there are few signs, so far, that the ultra-low U.S. unemployment rate is pushing up inflation.

In a speech in Portugal, Powell said Wednesday that with the unemployment rate at an 18-year low of 3.8 percent and inflation near the Fed's 2 percent target, the case for continued gradual increases in rates "is strong."

Low unemployment historically has pushed up inflation as companies raise prices so they can pay more to keep workers. But Powell noted that the sharp drop in unemployment since the recession has occurred "without much apparent reaction from inflation."

That suggests the Fed is less likely to accelerate rate hikes preemptively to forestall inflation.