‘Most’ Fed members see rising inflation in 2018, says Yellen
WASHINGTON: The majority of policymakers at the US central bank believe US price pressures will rise in 2018 despite recent weakness, Federal Reserve Chair Janet Yellen said yesterday. Sharp divisions among Fed members have persisted since last year over the causes of persistently weak inflation, which has failed to rise in the face of falling unemployment and steady job creation.
But the Fed is widely expected to raise rates in December for a third time this year, in the expectation that inflation will eventually kick in.
“My best guess is these soft readings will not persist and with the ongoing strengthening of labor markets, I expect inflation to move higher next year,” Yellen said. “Most of my colleagues agree.” She spoke at an international banking seminar in Washington at which the chiefs of also delivered remarks. At its most recent policy meeting, the Fed left rates unchanged but forecast one more increase this year and a further three in 2018. Minutes released last week showed however that a vocal minority of Fed policymakers do not accept one-off explanations-such as sudden drops in mobile phone and prescription drug prices-for weak inflation and are calling for the Fed to hold off raising rates prematurely. However, Yellen and some other key policymakers have also made plain they expect to continue to gradually raise interest rates given the strength of the overall economy and continued tightening of the labor market.
Fed officials largely shrugged off a weak jobs report for September and pinned the decline in employment on Hurricanes Harvey and Irma temporarily displacing workers.
In her speech, Yellen said the most recent wage gains contained in the September jobs report were encouraging and that she expected the central bank to raise interest rates further.
“We continue to expect that the ongoing strength of the recovery will warrant gradual increases in that rate to sustain a healthy labor market and stabilize inflation around our 2 percent longer-run objective.”
The central bank has raised interest rates four times in its tightening cycle which began in late 2015. The Fed currently predicts one more rate rise this year and three the next.
The Fed has two more scheduled meetings this year, in November and December. Investors currently see the Fed raising interest rates in December.— Agencies