Fed Chair Yellen hints at rate hike

Economist signals increase in March

WASHINGTON — Federal Reserve Chair Janet Yellen, in her semiannual report to Congress, on Tuesday painted a largely bright picture of the economy and signaled that the central bank would consider raising interest rates 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. But with inflation tame and the labor market continuing to expand — the economy added a strong 227,000 jobs in January — Yellen hinted at the possibility of a rate increase at the Fed’s next policy meeting in midMarch.

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.

Chris Rupkey, chief financial economist at MUFG Union Bank in New York, said that Yellen not only hinted at a rate hike but gave a clear indication that she did not want to be behind the curve by moving too slowly. “There’s the usual disclaimers and hedges, but we think she is raising the curtain for a potential rate hike in March this year,” he said.

Yellen noted in her remarks that there is considerable uncertainty in the outlook, citing as sources U.S. fiscal policies, the path of productivity growth and developments abroad.

At Tuesday’s hearing, Senate Banking Committee members focused early on the Fed’s role as regulator and the Trump administration’s nascent efforts to scale back the Dodd-Frank rules that were enacted after the financial crisis.

Sen. Mike Crapo, R-Idaho, chair of the Banking Committee, said he was encouraged by Trump’s executive order to review regulations. He raised concerns that the rules were constraining lending and economic growth.

Sen. Sherrod Brown, D-Ohio, the committee’s ranking Democrat, said “many of my Republican colleagues are dead set on going far beyond reasonable adjustments and seeking to repeal reforms that are key to preventing the next devastating financial crisis.”

Yellen said U.S. banks were now better capitalized, noting that, “I believe the financial system is much more resilient than it was.”