Federal Reserve Chair Janet Yellen said more interest-rate increases will be appropriate if the economy meets the central bank’s outlook of gradually rising inflation and tightening labor markets.
“At our upcoming meetings, the committee will evaluate whether employment and inflation are continuing to evolve in line with these expectations, in which case a further adjustment of the federal funds rate would likely be appropriate,” she told the Senate Banking Committee in prepared remarks Tuesday.
Today’s semiannual report on monetary policy is her first since Donald Trump became president after vowing to boost U.S. growth, which could push the Federal Open Market Committee to pick up the pace of rate hikes if such steps fan higher inflation.
“Waiting too long to remove accommodation would be unwise, potentially requiring the FOMC to eventually raise rates rapidly, which could risk disrupting financial markets and pushing the economy into recession,” she added.
Yellen gave no indication of the timing of the next hike in her prepared remarks. Investors see about a 30 percent chance of an increase at the next meeting of the FOMC on March 14-15.
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The Fed, which has only raised rates twice since the recovery began in 2009, has penciled in three quarter-point rate increases in 2017, as the economy closes in on the central bank’s goals for maximum employment and 2 percent inflation.
Yellen said the Fed panel’s outlook for a “moderate pace” of growth is based on continued stimulative monetary policy, and a pick-up in global activity. She did not mention Trump administration proposals as a key element in the central bank’s forecast.
Consumer spending has continued to rise at a “healthy pace,” she said, supported by gains in household income and wealth, favorable sentiment and low rates. The recent rise in mortgage rates “may impart some restraint” on housing markets, she said.