Yellen: Case for rate hike strength­en­ing

The Myanmar Times - - Business -

JUS­TI­FI­CA­TIONS for an in­ter­est rate in­crease in the United States have grown in re­cent months, says US Fed­eral Re­serve chief Janet Yellen.

In an ad­dress to a cen­tral bank­ing sym­po­sium at Jack­son Hole, Wy­oming, Ms Yellen took note of strong job growth, say­ing grad­ual in­creases in the Fed’s bench­mark rate in the com­ing years should be ex­pected.

“In light of the con­tin­ued solid per­for­mance of the labour mar­ket and our out­look for eco­nomic ac­tiv­ity and in­fla­tion, I be­lieve the case for an in­crease in the fed­eral funds rate has strength­ened in re­cent months,” Ms Yellen said on Au­gust 26.

Her words re­turned a mea­sure of clar­ity to the in­ten­tions of US mon­e­tary pol­i­cy­mak­ers, who have been pub­licly at odds in re­cent months over the need to raise rates in the near-term.

As the ste­ward of mon­e­tary pol­icy in the world’s largest econ­omy, the Fed­eral Re­serve sees its think­ing scru­ti­nised in­tensely by mar­ket play­ers ev­ery­where, driv­ing in­vest­ment de­ci­sions in com­modi­ties, eq­ui­ties and for­eign ex­change mar­kets around the globe.

Fed watch­ers had com­plained this year that US cen­tral bankers’ pub­lic pro­nounce­ments had been in­scrutable and some­times con­tra­dic­tory, leav­ing in­vestors per­plexed.

Her re­marks increased the like­li­hood that the Fed will in­crease the rate from its cur­rent ul­tra-low 0.250.50 per­cent level by the end of the year, and as early as its next meet­ing in Septem­ber.

The Fed had at the end of 2015 raised rates for the first time in nearly a decade, end­ing the poli­cies de­signed to re­spond im­me­di­ately to the Great Re­ces­sion.

But pol­i­cy­mak­ers quickly veered off this course early this year, fear­ing that the US econ­omy was grow­ing more weakly than they had fore­seen and global risks, es­pe­cially from China and Europe, had risen.

De­spite her clear sig­nal that a rate hike was now more likely, Ms Yellen cau­tioned that Fed de­ci­sions would de­pend on eco­nomic con­di­tions.

“Our abil­ity to pre­dict how the fed­eral funds will evolve over time is lim­ited be­cause mon­e­tary pol­icy will need to re­spond to what­ever dis­tur­bances may buf­fet the econ­omy,” Ms Yellen said, adding that such con­di­tions were vis­i­ble “only in hind­sight”. “For these rea­sons, the range of rea­son­ably likely out­comes for the fed­eral funds rate is quite wide. When shocks oc­cur and the eco­nomic out­look changes, mon­e­tary pol­icy needs to ad­just.”

Ms Yellen ear­lier this year had said Bri­tain’s sur­prise June vote to exit the Euro­pean Union had been one fac­tor caus­ing the Fed to fore­stall an in­crease in rates.

Econ­o­mists have said the US elec­tions also add a mea­sure of un­cer­tainty to global eco­nomic out­look.

Ms Yellen said the US econ­omy was adding jobs at an av­er­age rate of 190,000 per month and that house­hold spend­ing re­mained strong.

In ad­vance of the sym­po­sium, mem­bers of the Fed­eral Open Mar­ket Com­mit­tee, the Fed’s pol­icy body, met with ac­tivists who charge that the lead­er­ship of re­gional re­serve banks is dom­i­nated by wealthy white men drawn from the fi­nan­cial sec­tor and that rate hikes would cause wages to stag­nate for mi­nor­ity com­mu­ni­ties.

In a meet­ing, mem­bers of the groups Fed Up and the Cen­tre for Pop­u­lar Democ­racy told Fed pol­i­cy­mak­ers that the as­sess­ment that the US was ap­proach­ing full em­ploy­ment did not re­flect life for many blacks and Lati­nos look­ing for work.

“If you de­cide that we’re at max­i­mum em­ploy­ment now and in­ten­tion­ally slow down the econ­omy, you’ll be leav­ing us behind, pulling up the lad­der right af­ter you’ve climbed it,” said Rod Adams of Min­nesota Neigh­bor­hoods Or­gan­is­ing for Change.

Photo: EPA

Janet Yellen says rate hikes are to be ex­pected.

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