Yellen tells Congress to ex­pect more rate hikes

The Guardian (Charlottetown) - - BUSINESS - BY MARTIN CRUTSINGER

Fed­eral Re­serve Chair Janet Yellen told Congress on Wed­nes­day that the cen­tral bank ex­pects to keep rais­ing a key in­ter­est rate at a grad­ual pace and also plans to start trim­ming its mas­sive bond hold­ings this year.

In her semi­an­nual tes­ti­mony on the econ­omy, Yellen took note of a num­ber of en­cour­ag­ing fac­tors, in­clud­ing strong job gains and ris­ing house­hold wealth that she said should fuel eco­nomic growth over the next two years.

She blamed a re­cent slow­down in in­fla­tion on tem­po­rary fac­tors. But she says Fed of­fi­cials are watch­ing de­vel­op­ments closely to make sure that an­nual price gains move back to­ward the Fed’s 2 per cent tar­get.

Many economists be­lieve the Fed, which has raised rates three times since De­cem­ber, will hike rates one more time this year.

In her pre­pared tes­ti­mony be­fore the House Fi­nan­cial Ser­vices Com­mit­tee, Yellen re­peated the mes­sage she has been send­ing all year: the econ­omy has im­proved enough that it no longer needs the ex­tra­or­di­nary sup­port the cen­tral bank be­gan pro­vid­ing in 2008 in the wake of a se­vere fi­nan­cial cri­sis and the deep­est re­ces­sion since the 1930s.

She noted that since the depths of the re­ces­sion, un­em­ploy­ment is now down to 4.4 per cent, near a 16-year low.

And while the econ­omy started the year with a slug­gish growth rate of just 1.4 per cent, it has re­gained mo­men­tum in re­cent months, helped by strong job gains, a re­vival of busi­ness in­vest­ment and a strengthening of over­seas economies.

But Yellen cau­tioned that “con­sid­er­able un­cer­tainty al­ways at­tends the eco­nomic out­look.” Those in­clude whether in­fla­tion will in­deed pick up, as well as ques­tions about how much of Pres­i­dent Don­ald Trump’s eco­nomic pro­gram will make it through Congress. She noted that while the global econ­omy ap­pears stronger, “a num­ber of our trad­ing part­ners con­tinue to con­front eco­nomic chal­lenges.”

“At present, I see roughly equal odds that the U.S. econ­omy’s per­for­mance will be some­what stronger or some­what less strong than we cur­rently project,” she said.

Yellen made no ref­er­ence in her pre­pared re­marks to what many in­vestors see as one of the big­gest un­knowns at the mo­ment: whether Trump will ask Yellen to re­main as Fed leader when her cur­rent term ends next Fe­bru­ary. Yellen so far has de­flected ques­tions about whether she would ac­cept a sec­ond four-term term as chair­man if Trump asked her to re­main.

She also did not men­tion the po­ten­tial im­pact of Trump’s other Fed nom­i­na­tions on cen­tral bank in­ter­est rate de­ci­sions and its ap­proach to its other job, reg­u­lat­ing the na­tion’s largest banks.

AP PHOTO/RICHARD DREW

Fed­eral Re­serve Chair Janet Yellen’s con­gres­sional tes­ti­mony is seen on a tele­vi­sion screen on the floor of the New York Stock Ex­change Wed­nes­day. Yellen says that the cen­tral bank ex­pects to keep rais­ing a key in­ter­est rate at a grad­ual pace and also plans to start trim­ming its mas­sive bond hold­ings this year as long as the econ­omy keeps per­form­ing as ex­pected.

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