Yellen still predicts US inflation will rebound
NEW YORK: Federal Reserve Chair Janet Yellen stuck by her prediction that US inflation will soon rebound but offered on Tuesday an unusually strong caveat: she is “very uncertain” about this and is open to the possibility that prices could remain low for years to come.
A day after announcing her retirement from the US central bank, planned for early February, Yellen said the Fed is nonetheless reasonably close to its goals and should continue to gradually raise interest rates to keep both inflation and unemployment from drifting too low.
Yellen, one of the most powerful figures in world finance who also weighed in on the challenges women face in economics, said she does not believe that inflation expectations have drifted down too much despite five years of below-target US price readings.
Inflation should rebound over the next year or two, she said, adding: “I will say I am very uncertain about this.
My colleagues and I are not certain that it is transitory, and we are monitoring inflation very closely.”
A key lesson of her four-year tenure atop the Fed was to keep an open mind and not assume “you have a monopoly on truth,” Yellen told students and professors at NYU Stern School of Business.“It may be that there is something more endemic going on or longlasting here that we need to pay attention to.”
The Fed’s top policymakers have repeated their belief that inflation would rebound even while their preferred price measure has slipped to 1.3 per cent, below a 2 per cent target.
Unemployment has fallen to 4.1 per cent while overall economic growth is running strong at 3 per cent, prompting high expectations for a rate hike next month despite the price weakness.
Yellen noted that while undershooting the inflation target for too long “can be quite dangerous,” the Fed must also avoid driving unemployment “way below” sustainable levels.“We don’t want a boombust policy,” she said.
The first woman to lead the Fed, Yellen is credited with putting the economy on a firmer footing and steering monetary policy away from the fire-fighting mode that followed the 2007-2009 recession and financial crisis.