Fri, Jan 20, 2017 - Page 10 News List

Fed to slowly hike rates over three years

EASING BACK:The Fed’s foot is still ‘on the gas pedal’ because it wants to make sure the economy is strong enough to withstand shocks, Fed Chair Janet Yellen said


US Federal Reserve Chair Janet Yellen said she expects the Fed to raise its benchmark interest rate several times a year through 2019 as it moves closer toward to its economic goals of maximum employment and stable inflation in the US.

However, in a speech in San Francisco on Wednesday, she said she cannot say when the next interest rate will occur or how high rates would rise.

She said that will depend on how the US economy performs in the coming months.

She said Fed officials, who boosted rates for a second time last month, expect to raise rates “a few times a year” until they have pushed the Fed’s benchmark rate close to 3 percent by the end of 2019.

The rate stands in a range of 0.5 to 0.75 percent.

The 3 percent level for the Fed’s target for the federal funds rate, the interest that banks charge each other, is the point that the Fed believes is the so-called neutral rate — the level where the Fed’s interest-rate policies are not spurring growth or holding it back.

“Right now our foot is still pressing on the gas pedal, though, as I noted, we have eased back a bit,” Yellen said. “Our foot remains on the pedal in part because we want to make sure the economic expansion remains strong enough to withstand an expected shock, given that we don’t have much room to cut interest rates.”

Yellen said US inflation is still running below the Fed’s 2 percent objective, by its preferred measure of prices, and that some measures show that even though unemployment is below 5 percent, there could still be room to make further progress on jobs.

“For instance, wage growth has only recently begun to pick up and remains fairly low,” Yellen said.

She said as the US economy gets closer to the Fed’s goals on employment and inflation, it will make sense to “gradually reduce” the level of support the Fed is providing by raising interest rates.

“Waiting too long to begin moving toward the neutral rate could risk a nasty surprise down the road — either too much inflation, financial instability, or both,” Yellen said in her speech to the Commonwealth Club of San Francisco.

Yellen has said she intends to remain as Fed chair until her term ends in February 2018, despite US president-elect Donald Trump’s criticism of her during the election campaign.

Yellen was asked how the Fed safeguards its political independence while at the same time improving policy coordination with the US government’s executive branch.

One long tradition dating back decades is the Fed chair’s regular meetings with the US secretary of the Treasury, she said.

“During my time, I have had virtually a weekly breakfast or lunch with Jack Lew,” Yellen said, referring to the US secretary of the Treasury.

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