Manila Bulletin

Yellen says US rate hike com­ing; maybe next month

As fis­cal pol­icy adds un­cer­tainty

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WASH­ING­TON (AFP) – US Federal Re­serve Chair Janet Yellen made it clear on Tues­day that in­ter­est rate hikes are com­ing, and could hap­pen at any time.

It was the sig­nal an­a­lysts were look­ing for to con­firm their be­lief the next in­crease in the bench­mark rate could come as soon as the March 14-15 meet­ing, even though her com­ments mostly echoed what she has said mul­ti­ple times be­fore.

At the same time Yellen weighed into the de­bate over spend­ing plans and tax cuts promised by Pres­i­dent Don­ald Trump, as well as po­ten­tial im­mi­gra­tion lim­its, cau­tion­ing about mea­sures that could bust the bud­get or slow eco­nomic growth.

While tread­ing care­fully and not com­ment­ing on spe­cific poli­cies -- of which there are few in any case -- Yellen re­sponded to a ques­tion with a warn­ing that US fis­cal outlook has been ''a long stand­ing prob­lem.''

With an ag­ing pop­u­la­tion and ris­ing health care costs, the bud­get is ''al­ready not sus­tain­able,'' she told the Se­nate Bank­ing Com­mit­tee in the first day of her semi-an­nual tes­ti­mony, her first since Trump took of­fice.

''Some of the poli­cies that are be­ing dis­cussed might well raise deficits and ... may also have im­pacts on eco­nomic growth.''

How­ever, there sim­ply is not enough ''clar­ity'' on the poli­cies, and the im­pact on the econ­omy will de­pend on their ''tim­ing and com­po­si­tion.''

Yellen did not elab­o­rate on the kinds of poli­cies she would like to see, but the Fed fre­quently has stressed that slug­gish eco­nomic growth is partly the re­sult of the small in­creases in pro­duc­tiv­ity in re­cent years, and has en­cour­aged spend­ing on projects fo­cused on that.

The fear is that pump­ing money into an econ­omy near full em­ploy­ment will ig­nite in­fla­tion, un­less the poli­cies are geared to­ward im­prov­ing pro­duc­tive ca­pac­ity, for ex­am­ple through im­proved in­fra­struc­ture such as roads, ports and air­ports.

In­fla­tion is the Fed's pri­mary en­emy and poli­cies that set off a spend­ing spree in the econ­omy risk push­ing the cen­tral bank to raise in­ter­est rates faster.

Al­though Trump crit­i­cized the Fed dur­ing the cam­paign for keep­ing rates near zero to help then-pres­i­dent Barack Obama, he is un­likely to look fa­vor­ably on higher rates that would crimp eco­nomic growth and in­vest­ment.

Yellen warned that curb­ing im­mi­gra­tion could slow al­ready slug­gish US eco­nomic growth.

Im­mi­grants help in­crease the pool of avail­able work­ers in the US la­bor force as older work­ers age out, which is key to in­creas­ing slow growth and the ''de­press­ingly slow'' pro­duc­tiv­ity growth, she said.

''So slow­ing the pace of im­mi­gra­tion prob­a­bly would slow the growth rate of the econ­omy.''

Trump's im­mi­gra­tion poli­cies have in­cluded an or­der bar­ring en­try to na­tion­als from seven Mus­lim-ma­jor­ity coun­tries, since blocked by the courts, as well as na­tion­wide raids to scoop up and de­port il­le­gal im­mi­grants with crim­i­nal records.

Yellen pre­sented an up­beat view of the econ­omy, with la­bor mar­ket con­di­tions con­tin­u­ing to im­prove and in­fla­tion slowly inch­ing up to the Fed's two per­cent tar­get. She con­firmed the next rate in­crease could come at any time.

If those fac­tors con­tinue to im­prove as ex­pected, ''it prob­a­bly will be ap­pro­pri­ate to raise in­ter­est rates fur­ther,'' she said.

Yellen said she could not be spe­cific on the tim­ing, but ''every meet­ing is live'' – a sig­nal an­a­lysts were look­ing for, as many have raised the chances for a rate in­crease at next month's pol­icy meet­ing.

The Fed's pol­icy-set­ting Federal Open Mar­ket Com­mit­tee raised rates in De­cem­ber for only the sec­ond time in a decade, a year af­ter its first postcri­sis in­crease, but kept rates steady in Jan­uary.

Next month's meet­ing will be fol­lowed by Yellen's quar­terly press con­fer­ence, which height­ens the an­tic­i­pa­tion for a pol­icy move.

But her tes­ti­mony fea­tured mostly fa­mil­iar state­ments, in­clud­ing re­peat­ing that ''mon­e­tary pol­icy is not on a pre­set course,'' and de­ci­sions will be made ''in re­sponse to changes to the eco­nomic outlook and as­so­ci­ated risks as in­formed by the eco­nomic data.''

Yellen also said, as she has be­fore, that wait­ing too long to raise rates would be ''un­wise,'' as it might force the cen­tral bank to in­crease them more quickly later.

She noted that job gains av­er­aged 190,000 a month in the sec­ond half of 2016, wage growth has picked up, and the un­em­ploy­ment rate is at 4.8 per­cent.

At the same time, the per­sonal con­sump­tion ex­pen­di­tures in­dex -- the in­fla­tion mea­sure the Fed watches closely -- rose to 1.6 per­cent in De­cem­ber, still low but head­ing in the right di­rec­tion.

 ??  ?? Federal Re­serve Board Chair­woman Janet Yellen speaks about the Federal Re­serve's semi­an­nual re­port dur­ing a hear­ing of the Se­nate Bank­ing, Hous­ing and Ur­ban Af­fairs Com­mit­tee on Capi­tol Hill Fe­bru­ary 14, 2017 in Wash­ing­ton, DC. (AFP)
Federal Re­serve Board Chair­woman Janet Yellen speaks about the Federal Re­serve's semi­an­nual re­port dur­ing a hear­ing of the Se­nate Bank­ing, Hous­ing and Ur­ban Af­fairs Com­mit­tee on Capi­tol Hill Fe­bru­ary 14, 2017 in Wash­ing­ton, DC. (AFP)

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