Yellen sug­gests a con­tin­u­a­tion of grad­ual rate hikes

The Columbus Dispatch - - Market Summary - By Martin Crutsinger

WASH­ING­TON — Fed­eral Re­serve Chair Janet Yellen said Wed­nes­day that the Fed ex­pects to con­tinue rais­ing in­ter­est rates grad­u­ally. And she sought to as­sure law­mak­ers that the Fed would take care not to choke off any ex­tra growth gen­er­ated by tax cuts as long as in­fla­tion stayed tame.

In likely her last ap­pear­ance be­fore Congress be­fore she leaves the Fed in Fe­bru­ary, Yellen re­ceived praise and ap­pre­ci­a­tion from Repub­li­cans and Democrats on the Joint Eco­nomic Com­mit­tee who saluted her four-year ten­ure.

Yellen’s testimony re­in­forced state­ments made Tues­day by Jerome Pow­ell at his Se­nate con­fir­ma­tion hear­ing to suc­ceed her as Fed chair­man. Pres­i­dent Don­ald Trump chose Pow­ell, a Fed board mem­ber, to re­place Yellen, the first woman to lead the cen­tral bank, after say­ing he wanted to im­pose his own stamp on the Fed.

Yellen and Pow­ell both stressed this week that the Fed in­tends to keep mov­ing in­cre­men­tally to raise rates in re­sponse to a con­sis­tently solid econ­omy. Pow­ell said at his con­fir­ma­tion hear­ing that he thought the case for a rate in­crease when the Fed meets next month was “com­ing to­gether.” In­deed, most economists ex­pect the Fed to raise rates in De­cem­ber for the third time this year.

In her ap­pear­ance, Yellen painted a gen­er­ally up­beat view of the econ­omy, with growth achiev­ing an an­nual rate above 3 per­cent for two straight quar­ters for the first time in three years. On Wed­nes­day, the govern­ment es­ti­mated that the econ­omy grew at a 3.3 per­cent an­nual rate in the July-Septem­ber pe­riod.

Pres­i­dent Don­ald Trump is push­ing Congress to pass a tax cut bill this year to give the econ­omy a boost. Repub­li­cans on the com­mit­tee asked Yellen whether the Fed might end up negat­ing any such stim­u­lus ef­fect by ac­cel­er­at­ing its rate hikes to pre­vent the econ­omy from over­heat­ing.

“We wel­come strong growth,” Yellen replied. “The Fed is not try­ing to sti­fle growth.”

She said that if eco­nomic ex­pan­sion were to ex­ceed the mod­est rates that have pre­vailed in re­cent years, “we will be de­lighted to sup­port that. ... We do not have some cap on growth that we are try­ing to achieve.”

But she said that in an econ­omy al­ready op­er­at­ing with un­em­ploy­ment at a 17-year low of 4.1 per­cent, she hoped any eco­nomic ac­cel­er­a­tion would be ac­com­pa­nied by growth in the work­force or im­proved worker pro­duc­tiv­ity.

The tax plans in Congress are pro­jected to raise bud­get deficits by $1.5 tril­lion over the next decade. Yellen said that the ris­ing govern­ment debt was a con­cern and that pro­pos­als to re­scind the tax cuts if faster eco­nomic growth didn’t ma­te­ri­al­ize were worth con­sid­er­ing.

“I am very wor­ried about the sus­tain­abil­ity of the U.S. debt tra­jec­tory,” Yellen told law­mak­ers. She said long-term pro­jec­tions by the Con­gres­sional Bud­get Of­fice that take ac­count of ris­ing govern­ment ben­e­fits as baby boomers re­tire “should keep peo­ple awake at night.”

[JACQUELYN MARTIN/ THE AS­SO­CI­ATED PRESS]

Fed­eral Re­serve Chair Janet Yellen, cen­ter, leaves the Long­worth House Of­fice Build­ing after tes­ti­fy­ing at a hear­ing of the Fed­eral Re­serve Board Joint Eco­nomic Com­mit­tee on Wed­nes­day. It likely will be her last ap­pear­ance on Capi­tol Hill in Wash­ing­ton.

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