Fed's Yellen gives a strong signal that an interest rate hike is coming
Fed's Yellen gives a strong signal that an interest rate hike is coming
Federal Reserve Chairwoman Janet L. Yellen testifies before the Senate Banking Committee on Feb. 14. (Andrew Harnik / Associated Press)
Jim PuzzangheraBy Jim Puzzanghera•Contact Reporter
March 3, 2017, 1:45 PM |Reporting from Washington
An improving economy highlighted by solid job growth is spurring Federal Reserve officials to strongly signal that they’ll nudge up a key interest rate again this month.
It is the clearest sign yet that the central bank is ready to move further away from the extraordinary measures it took to fight the Great Recession.
Fed Chairwoman Janet L. Yellen said Friday that another hike “would likely be appropriate” when monetary policymakers meet March 14-15, as long as incoming economic data remain positive.
That would be the second increase in three months, after the Fed waited 6½ years for the first hike following the end of the recession in 2009. It waited another year — until December 2016 — for the second increase.
The Fed had taken the unprecedented step of lowering the rate to near zero in late 2008 in an effort to spur the economy.
In a speech at the Executives’ Club in Chicago, Yellen said the slow economic recovery “has essentially met” the Fed’s goal for low unemployment while inflation finally is “moving closer” to the central bank’s annual objective of 2%, she said.
The Fed wants to avoid inflation getting too high, which would eat away at consumers’ purchasing power. And although Yellen said the Fed is not factoring in potential economy-boosting policies from the Trump administration, those could add to upward pressure on prices.
“It seems like they are willing to be very aggressive in staying ahead of what the see as an uptick in inflation,” said Mike Loewengart, vice president of investment strategy at E-Trade.
Yellen’s comments, combined with recent statements from other top Fed officials, confirm the increasing view of investors that the benchmark federal funds rate will be nudged up to a range between 0.75% and 1% at the policymaking Federal Open Market Committee’s March meeting.
“In short, we currently judge that it will be appropriate to gradually increase the federal funds rate if the economic data continue to come in about as we expect,” Yellen said.
“Indeed, at our meeting later this month, the committee will evaluate whether employment and inflation are continuing to evolve in line with our expectations, in which case a further adjustment of the federal funds rate would likely be appropriate,” she said.
A hike would be the first of three 0.25-percentage-point increases the Fed has indicated it plans to make this year.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, said Yellen’s comments were “about as blunt a statement of near-term policy intent as we have ever seen” from a Fed chief.
The only thing that could derail a March rate hike would be a “disastrous” job-growth figure from the Labor Department next Friday, the last major economic report before the Fed meeting. Analysts expect that report to show solid job growth of 175,000 in February and the unemployment rate ticked down to 4.7%.
Despite criticism that the Fed has moved too slowly, Yellen said Friday that she sees “no evidence” that the Fed has “fallen behind the curve” in raising the rate to counter an improving economy.
In a lengthy address, Yellen didn’t mention any of the proposals from President Trump that could stimulate the economy, including tax cuts, reduced regulation and increased government spending.
But in a question-and-answer session after the speech, Yellen said there was “great uncertainty” about what policies the Trump administration and Congress might put in place and how they would affect the economy. Given that, Fed officials aren’t taking such issues into account in their rate-hike decisions, she said.
“I think most of my colleagues and I have decided that we should simply be patient and wait to see what happens,” Yellen said.
Fed policymakers this week indicated that they were preparing another hike to prevent the economy from overheating while keeping the rate low enough to continue stimulating growth.
“Our goal is to attain what I like to call a ‘Goldilocks economy’ — an economy that doesn’t run too hot or too cold,” John Williams, president of the Federal Reserve Bank of San Francisco, told the Santa Cruz Chamber of Commerce on Tuesday. “In my view, a rate increase is very much on the table for serious consideration at our March meeting.”
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http://www.latimes.com/business/la-fi-janet-yellen-fed-20170303-story.html
