US Federal Reserve Chair Janet Yellen professed her disappointment over not being tapped for a second term by US President Donald Trump, while she also predicted the central bank would keep on its path of gradual interest rate increases.
“I would have liked to serve an additional term and I did make that clear, so I will say I was disappointed not to be reappointed,” she said on PBS NewsHour in a rare television interview on Friday.
“I feel great about the economy,” Yellen said on her last day on the job. “I think things are looking very strong.”
“The Federal Reserve has been on a path of gradual rate increases and if conditions continue as they have been, that process is likely to continue,” she said.
In a break from past practice, Trump opted not to nominate Yellen to a second four-year term. Instead, he chose fellow Republican Jerome Powell to head the central bank. Powell is to be sworn in as chair today at 9am.
Yellen said that gains in the labor market had begun to benefit “almost all groups in the American economy,” and that she expected the pace of wage growth to move up, but perhaps not dramatically.
“Ultimately, wage growth is limited by productivity growth, which is weak,” she said.
During Yellen’s four-year term, unemployment fell from 6.7 percent when she took office to 4.1 percent. Last month’s reading, released on Friday, matched the lowest since 2000 and was less than the level that most economists — including those at the Fed — say is equivalent to full employment.
However, inflation has consistently fallen short of the Fed’s 2 percent objective during Yellen’s tenure and stood at 1.7 percent in December last year, according to the Fed’s favorite price gauge.
Yellen and her fellow policymakers this week said they expect inflation to rise this year and to hit their target “over the medium term.”
Notwithstanding this week’s rout in the stock market, investors have prospered during Yellen’s time atop the central bank. Since she took control in February 2014, the Dow Jones Industrial Average has risen by more than 65 percent.
As Fed chair, Yellen began the process of exiting from the extraordinary measures that the Fed put in place during the financial crisis and its aftermath, gingerly lifting interest rates from near zero percent and slowly scaling back the central bank’s big holdings of bonds.
For Powell, he takes over at a remarkably quiet time following a decade of economic turmoil that forced the central bank into uncharted policy waters to try to recover from the global financial crisis.
Nevertheless, Powell, one of the rare non-economists to fill the role, could soon face difficult policy decisions that would put him at the center of debate over how fast to raise interest rates.
This comes at a time when all major global economies are growing simultaneously, an unusual and happy coincidence, but one that begins to raise concerns about when the recovery could end — and how.
“His biggest challenge will be leading the further calibration of interest rates when the US economy is late cycle amid a synchronized global economic upswing and fiscal stimulus is on its way,” said Kathy Bostjancic, who is director of US Macro Investor Services at Oxford Economics Ltd.
The Fed in December raised the benchmark lending rate for the third time last year and indicated that another three hikes were likely this year.
The first rate increase for this year is widely expected to come in March, which would also feature the first news conference by Powell, who has served on the Fed board since 2012.
“Massive fiscal policy piled on top of an economy that was growing solidly and has limited labor availability has not been tried before,” economist Joel Naroff said. “How this ‘Grand Fiscal Experiment’ affects wage and price inflation is something the Fed has to be worried about.”
Additional reporting by AFP
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