Thu, Feb 16, 2017 - Page 10 News List

Fed likely to raise rates at an upcoming meeting


US Federal Reserve Chair Janet Yellen prepares to speak before a Senate Banking, Housing and Urban Affairs Committee hearing on Tuesday in Washington.

Photo: Reuters

The US Federal Reserve is likely need to raise interest rates at an upcoming meeting, Fed Chair Janet Yellen said on Tuesday, although she flagged considerable uncertainty over economic policy under US President Donald Trump administration.

Yellen said delaying rate increases could leave the Federal Open Market Committee behind the curve and eventually lead it to hike rates quickly, which she said could cause a recession.

“Waiting too long to remove accommodation would be unwise,” Yellen told the US Senate Banking Housing and Urban Affairs Committee, citing the central bank’s expectations the job market would tighten further and that inflation would rise to 2 percent.

“The committee will evaluate whether employment and inflation are continuing to evolve in line with these expectations, in which case a further adjustment of the federal funds rate would likely be appropriate,” she said.

Yellen did not say if Fed policymakers expected the US economy would warrant three interest rate increases this year, as they last signaled in December last year. Nor did she give indications whether the first rate hike of the year might come at its next meeting next month or at the June meeting.

Since the end of the 2007 to 2009 recession, the Fed has raised rates once in December 2015 and again in December last year.

Yellen added that Fed policymakers would be discussing in the coming months how the central bank would eventually reduce the size of its bond portfolio, which ballooned during the financial crisis as the Fed sought to keep rates low.

She repeated the Fed’s guidance that reducing its holdings would begin when the Fed’s current cycle of rate hikes is well under way.

Yellen was appearing in US Congress for the first time since Republicans took control of the White House and both houses of the legislature and she nodded to the uncertainties over the direction of US economic policy.

“Changes in fiscal policy or other economic policies could potentially affect the economic outlook,” she said. “It is too early to know what policy changes will be put in place or how their economic effects will unfold.”

Trump has announced a rollback of financial regulation with few details and there is no clarity on the size and scope of the tax cuts he has promised, while possible new taxes on imports and increased infrastructure spending could boost inflation.

Inflation has remained persistently below the Fed’s 2 percent target for several years and Yellen said it was “reassuring” that market-based measures of inflation compensation had recently risen, although she noted they remain low.

Yellen said she did not want to weigh in on specific tax and spending proposals, but she urged policymakers to consider the importance of making US businesses more efficient, which economists believe is essential to raising living standards over the long term.

“I would also hope that fiscal policy changes will be consistent with putting US fiscal accounts on a sustainable trajectory,” she said.

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