Yellen: Fed mon­i­tor­ing in­fla­tion

The Denver Post - - BUSINESS - By Martin Crutsinger

WASHINGTON» Fed­eral Re­serve Chair Janet Yellen raised the pos­si­bil­ity Wed­nes­day that the Fed would con­sider slow­ing the pace of its in­ter­est rate in­creases if in­fla­tion re­mained per­sis­tently be­low its tar­get level.

For the mo­ment, Yellen sig­naled no change in pol­icy, in­di­cat­ing that the three rate hikes since De­cem­ber will likely be fol­lowed by one more hike this year. She also said the Fed wants to be­gin grad­u­ally trim­ming its mas­sive $4.5 tril­lion in bond hold­ings later this year, a move that will also put up­ward pres­sure on in­ter­est rates.

But Wall Street in­vestors took heart from her slightly more cau­tious view of a re­cent puz­zling slow­down in in­fla­tion, be­liev­ing it could sig­nal that the Fed that might be will­ing to put fur­ther rate hikes on pause.

“Mon­e­tary pol­icy is not on a pre-set course,” Yellen told law­mak­ers on the House Fi­nan­cial Ser­vices Com­mit­tee. “We’re watch­ing it very closely and stand ready to ad­just our pol­icy if it ap­pears that the in­fla­tion un­der­shoot will be per­sis­tent.”

The Fed’s key pol­icy rate, the fed­eral funds rate, cur­rently stands in a range of 1 per­cent to 1.25 per­cent. The last three in­creases oc­curred in De­cem­ber, March and June. Many an­a­lysts be­lieve the Fed will raise rates one more time this year, ei­ther in Septem­ber or De­cem­ber.

Yellen’s ap­pear­ance took on a bit of a vale­dic­tory tone, given that her cur­rent four-year term as chair will end in early Fe­bru­ary be­fore the next round of con­gres­sional hear­ings. At one point, she ac­knowl­edged that her ap­pear­ance Wed­nes­day be­fore the House panel and on Thurs­day be­fore the Se­nate Fi­nance Com­mit­tee could be her last time to present the Fed’s semi­an­nual Mon­e­tary Pol­icy Re­port to Congress.

Yellen, the first woman to head the Fed in the cen­tral bank’s 100 year his­tory, was asked sev­eral times if she would ac­cept an­other term if Pres­i­dent Don­ald Trump of­fered it. She didn’t pro­vide a di­rect an­swer.

“I am very fo­cused on try­ing to achieve our con­gres­sion­ally man­dated ob­jec­tives and I re­ally haven’t had to give fur­ther thought at this point” to the ques­tion of serv­ing a sec­ond term, Yellen told Rep. Carolyn Maloney, D-New York.

In her tes­ti­mony, 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.

Yellen re­peated the mes­sage she has been send­ing all year that the U.S. econ­omy 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.

Since the depths of the re­ces­sion, un­em­ploy­ment is now down to 4.4 per­cent, near a 16-year low. And while the econ­omy started the year with a slug­gish growth rate of just 1.4 per­cent, it has re­gained mo­men­tum in re­cent months.

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.”

Pete Marovich, Getty Im­ages

Fed­eral Re­serve Chair Janet Yellen on Wed­nes­day tes­ti­fies be­fore the House Fi­nan­cial Com­mit­tee about the state of the econ­omy.

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