Yellen signals interest rate hikes are coming
WASHINGTON — Federal Reserve Chair Janet Yellen on Tuesday painted a largely upbeat picture of the economy, telling lawmakers that somewhat faster wage growth is in store for workers, even as she signaled that the central bank would consider raising interest rates as early as next month.
Most analysts are not looking for a Fed rate hike until June, and Yellen and her colleagues, at their last policy meeting two weeks ago, gave little indication of an imminent move. Yellen didn’t change her tune Tuesday, but with inflation on a favorable path and the labor market continuing to expand — the economy added a strong 227,000 jobs in January — she left open the possibility of a rate increase when the Fed next meets in mid-March.
The Fed “expects the evolution of the economy to warrant further gradual increases in the federal funds rate,” Yellen told the Senate Banking Committee on the first of two days of hearings, part of congressionally mandated testimony and a report on monetary policy and the economy. Policymakers last lifted their benchmark short-term rate in December, for only the second time since the Great Recession ended in 2009.
At the same time, Yellen reiterated that there is considerable uncertainty in the economic outlook. She cited as sources fiscal policies, productivity growth and developments abroad, although not directly referring to President Trump or his plans for tax reform and other policy changes.
“We recognize that there may be significant economic policy changes and that those changes could affect the outlook. We’re very well aware of that,” Yellen said. “And we don’t yet have enough clarity on what changes will be put in place to really clearly factor those policy changes into the economic outlook . ... We will wait to gain greater clarity on policy changes.”
Despite being pressed by lawmakers, she declined to evaluate Trump’s economic initiatives or speculate about what they might mean for the economy.
Hopes for fiscal stimulus, particularly tax cuts, but also substantial infrastructure spending as well as a rollback of business regulations, have fueled a surge in stock markets.
Stocks rose Tuesday, with major indexes hitting new highs, despite the possibility of a rate hike as early as next month.
“While it is not my intention to opine on specific tax or spending proposals, I would point to the importance of improving the pace of longer run economic growth and raising American living standards with policies aimed at improving productivity,” Yellen said, noting in particular education and training to improve workers’ skills.
In answers to lawmakers’ questions, Yellen did weigh in on a couple of Trump’s policy moves, in general. She said, for example, that slowing immigration would tend to slow the economy, as the pace of economic growth is based primarily on changes in labor force and productivity gains.