 "Dynamic Capital")
Federal Reserve Chair, Janet Yellen, announced on Tuesday to lawmakers in Congress that she believes the American economy is on track for interest rates to be raised steadily throughout year, as delays could cause unintended consequences. She mentioned considerable uncertainty over economy policy from the legislative and executive branches of government, however, she also warned that delaying the rate hikes too long could leave interest rates behind the curve. According to Yellen, if it was postponed it could lead to quicker interest rates hikes to try to catch up, which could potentially force the economy into a recession.
In prepared remarks before the US Senate Banking Committee, Yellen suggested said “Waiting too long to remove accommodation would be unwise.” They expect the job market to tighten further, pushing inflation upwards as increased competition in the labor market forces up and increases national demand as people get additional discretionary income. She went on to clarify that the federal reserve chairs committee will proceed to analyze whether employment and inflation and continuing to develop in line with their expectations will call for a hike in the federal funds rate. She failed to explain if the Fed policymakers anticipate all three rate increases they signaled would be necessary last December, nor did she commit to begin the increases at their upcoming meeting in March or wait until the subsequent one in June, which most analysts believe is more likely.
Today marks the first-time Yellen appeared formally to Congress since Republicans gained majority of both the legislative and executive branches of government, and she acknowledged that it is too early to know what changes will be put into place, but decisive economic policy improvements implemented by them could have a positive impact on the economy. Trump recently announced that he would be rolling back at least some of the financial regulation implemented by Obama, which some have argued is stifling bank lending and therefore economic growth. However, he has yet to release details on the number of rollbacks, nor has he gone into detail on the size and scope of the tax cuts he proposed during his campaign, in the transitionary period and since taking office.
The president has also spoken of fiscal stimulus to rebuild America’s crumbling infrastructure, which could put Americans back to work and boost the economy. He has suggested imposing new taxes on imports from major trading partners, such as Mexico, which would raise inflation, so increasing interest rates could help balance that out. Inflation has remained steadily under the Fed’s target of 2% over the past few years, likely part of the reason they have yet to increase the rates significantly. Yellen refrained from giving her opinion on specific tax and spending proposals to Congress, but she emphasized the importance of making US business more efficient which most economists believe is vital to maintaining and improving living standards for Americans in the long run, likely meaning she supports cutting regulations responsibly and lowering taxes.