Trump not a factor in rate hikes, Yellen says
Federal Reserve Chair Janet Yellen sounds like she is on a mission to raise interest rates this year — no matter what U.S. President Donald Trump does on tax cuts and spending.
In a clarifying point during Senate questioning on Tuesday, Yellen said her monetary policy panel does not need to wait for the Trump’s administration’s plans on fiscal stimulus to hike rates.
“We are not basing our judgments about current interest rates on speculation” about fiscal policy, Yellen told Nevada Republican Sen. Dean Heller. She added that the economy’s “solid progress” is what is “driving our policy decisions.”
It’s a subtle but important switch from a year ago, when the Federal Open Market Committee started with a plan for four rate hikes, and was already worrying by March about the state of the global economy. In the end, they hiked a single time, in December.
The committee’s conviction about its plans for three hikes this year boils down to a shifting sense that upside risks this year look as potent as downside risks, if not more.
Yellen also said that the committee “in the coming months” will provide further guidance on how it plans to shrink its US$4.5 trillion balance sheet.
“I would anticipate a balance sheet that’s substantially smaller than at the current time,” she said.
Yellen’s semi-annual report on monetary policy is her first since Trump became president. During the hearing, Yellen said she has no plans to leave before her current term expires in a year.
Speaking at the White House press briefing when asked about the administration’s view of Yellen, Treasury Secretary Steven Mnuchin said he looks forward to meeting with her to continue the tradition of regular discourse between the Treasury and the Fed.