Yellen says gradual hikes should continue,despite weak inflation
Fed's Yellen says gradual hikes should continue, despite weak inflation
The Federal Reserve needs to continue gradual rate hikes despite broad uncertainty about the path of inflation, Fed Chair Janet Yellen said on Tuesday in remarks that acknowledged the central bank’s struggles to forecast one of its key policy objectives.
Still, recent low inflation was likely a reflection of factors that would fade over time and despite uncertainties, it “would be imprudent to keep monetary policy on hold until inflation is back to 2 percent,” Yellen said in a 37-page address to the National Association for Business Economics.
“Without further modest increases in the federal funds rate over time, there is a risk that the labor market could eventually become overheated, potentially creating an inflationary problem down the road that might be difficult to overcome without triggering a recession,” she said.
She did not provide a definite answer, noting that in current forecasts there was a 30 percent chance inflation could range anywhere from 1 percent to 3 percent, vastly different outcomes either of which could rewrite the Fed’s policy approach. But she did make clear the Fed still feels a gradual pace of rate hikes remains the base case.
Yellen said Tuesday she would be looking at inflation and labor market data closely in coming months to assess the outlook, but “the data is noisy and it’s not going to be a magic bullet.”
The dollar shot up then retreated after Yellen’s comments, reflecting uncertainty about her message. Treasury yields and stocks edged slightly higher.
The Federal Reserve needs to continue gradual rate hikes despite broad uncertainty about the path of inflation, Fed Chair Janet Yellen said on Tuesday in remarks that acknowledged the central bank’s struggles to forecast one of its key policy objectives.
Still, recent low inflation was likely a reflection of factors that would fade over time and despite uncertainties, it “would be imprudent to keep monetary policy on hold until inflation is back to 2 percent,” Yellen said in a 37-page address to the National Association for Business Economics.
“Without further modest increases in the federal funds rate over time, there is a risk that the labor market could eventually become overheated, potentially creating an inflationary problem down the road that might be difficult to overcome without triggering a recession,” she said.
She did not provide a definite answer, noting that in current forecasts there was a 30 percent chance inflation could range anywhere from 1 percent to 3 percent, vastly different outcomes either of which could rewrite the Fed’s policy approach. But she did make clear the Fed still feels a gradual pace of rate hikes remains the base case.
Yellen said Tuesday she would be looking at inflation and labor market data closely in coming months to assess the outlook, but “the data is noisy and it’s not going to be a magic bullet.”
The dollar shot up then retreated after Yellen’s comments, reflecting uncertainty about her message. Treasury yields and stocks edged slightly higher.
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3 Things to Watch Today
1. Canada Poloz 11:45AM NY
2. Trump Tax Speech 3PM NY
3. RBNZ Rate Decision 4PM NY
1. Canada Poloz 11:45AM NY
2. Trump Tax Speech 3PM NY
3. RBNZ Rate Decision 4PM NY
Republican tax cuts won't be retroactive - report
Dow Jones report
That's a US dollar negative. There was lots of talk the tax cut would apply from the start of the year, which could have meant some big tax refunds for many people that they would have been spending early in the year.
A tax cut would still be good news for the US dollar, but at retroactive cut would virtually guarantee a Fed hike in December (and probably another one in March).