23 October 2016
Federal Reserve chair Janet Yellen addresses the Economic Club of New York on Tuesday. Photo: AFP
Federal Reserve chair Janet Yellen addresses the Economic Club of New York on Tuesday. Photo: AFP

Cautious Yellen pushes back on Fed officials eyeing hike

Federal Reserve chair Janet Yellen said the US central bank should proceed cautiously in raising interest rates, pushing back on a handful of her colleagues who have suggested another move may be just around the corner.

In her first comments since the Fed decided to hold rates steady two weeks ago, Yellen on Tuesday said inflation has not yet proven durable against the backdrop of looming global risks to the US economy, including still-low oil prices and concerns over China, Reuters reported.

The comments, which boosted stocks and bonds and hit the dollar, come as healthier measures of US inflation and manufacturing have prompted some other Fed officials to say another policy tightening could come as soon as April.

But Yellen was not about to change tack just yet.

“Given the risks to the outlook, I consider it appropriate for the [Federal Open Market] Committee to proceed cautiously in adjusting policy,” she said.

At its March policy meeting, the Fed had cited an overseas slowdown and early-year market turmoil in justifying a pause to its policy tightening.

At the time, Fed officials also downgraded economic expectations and predicted only about two more rate hikes this year, down from a December prediction of four.

Yellen said she still expects headwinds from weak growth abroad, low oil prices and uncertainty over China would abate and allow the US recovery to continue alongside a “gradual” series of rate hikes.

But, she added, the overseas developments “imply that meeting our objectives for employment and inflation will likely require a somewhat lower path for [rates] than was anticipated in December”, when the Fed tightened its policy for the first time in a decade.

In response to her comments at the Economic Club of New York, the dollar dropped to a one-week low while equities and gold rebounded.

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