Date
23 March 2017
Janet Yellen testifies before a senate committee on Capitol Hill. She said a faster pace of interest rate hikes would be appropriate if the economy continues to meet expectations. Photo: Reuters
Janet Yellen testifies before a senate committee on Capitol Hill. She said a faster pace of interest rate hikes would be appropriate if the economy continues to meet expectations. Photo: Reuters

Yellen sees more rate hikes ahead if economy stays on course

Federal Reserve chairman Janet Yellen said more interest-rate increases will be appropriate if the US economy meets the central bank’s outlook of gradually rising inflation and tightening labor markets, Bloomberg reports.

“At our upcoming meetings, 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 told the Senate Banking Committee in prepared remarks Tuesday.

Yellen’s semi-annual report on monetary policy is her first since Donald Trump became president vowing to boost US growth, which could push the Federal Open Market Committee to pick up the pace of rate hikes if such steps fan higher inflation.

She reiterated that falling behind on inflation could harm the economy and possibly cut short the expansion.

“Waiting too long to remove accommodation would be unwise, potentially requiring the FOMC to eventually raise rates rapidly, which could risk disrupting financial markets and pushing the economy into recession,” she added.

Yellen gave no indication of the timing of the next hike in her prepared remarks.

Investors see about a 34 percent chance of an increase at the next meeting of the FOMC on March 14-15, up from about 30 percent before she spoke. Treasuries fell, US stocks pared losses and the dollar rose.

The Fed, which has only raised rates twice since the recovery began in 2009, has penciled in three quarter-point rate increases in 2017, as the economy closes in on the central bank’s goals for maximum employment and 2 percent inflation.

Yellen said the Fed panel’s outlook for a “moderate pace” of growth is based on continued stimulative monetary policy, and a pick-up in global activity. She did not mention Trump administration proposals as a key element in the central bank’s forecast.

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