Gradual Growth In Rate Hike Reiterated By US Fed Chair Yellen

The US Federal Reserve expects that there would be continued strength in the country’s economy and job market and this has led Fed Chair Janet Yellen to conclude that the this is the appropriate time for the US central bank to continue with its policy of gradual hike in rates of interest.

“We continue to expect that gradual increases in the federal funds rate will be appropriate to sustain a healthy labor market and stabilize inflation around the FOMC’s (Federal Open Market Committee) 2 per cent objective,” said Yellen on Wednesday in remarks before the US Congress Joint Economic Committee, Xinhua reported.

The assessment of the U.S. economy was quite upbeats as said by Yellen. “The economic expansion is increasingly broad based across sectors as well as across much of the global economy,” said Yellen.

The rate of unemployment in the economy is currently poised at 4.1 percent which is the lowest for the data since the last 17 years and this makes economists believe that the US job market is in a strong position. Yellen said that compared to the number eight years ago, there are about 17 million Americans who are in employed now.

Yellen expects that on the medium term, the rates of inflation would eventually inch up to the 2 percent mark that the Fed has aimed for and added that the low rates of prevalent in the country this year could be reflective of a number of transitory factors.

However, economic factors that are more persistent could be reflected in the low inflation readings, she also pointed out.

According to the latest minutes of the Fed policy meetings, there is a divide among Fed officials over the issue of inflation outlook.

The continued and persistent low rates of inflation mean that the central bank should adopt a policy of slower and gradual tightening of the monetary policy, argued some of the officials, while others were of the opposite opinion and cautioned that here could be labor market overheating which may result in enhancement of upside risks to inflation if the Fed waited too long to implement the strategy of enhancement of interest rates.

Despite the high valuations of assets prices, the potential risks in the financial system were downplayed by Yellen in her remarks.

“Although asset valuations are high by historical standards, overall vulnerabilities in the financial sector appear moderate, as the banking system is well capitalized and broad measures of leverage and credit growth remain contained,” said Yellen.

There was no mention of what the central bank would do or was planning to do in the short term in any of Yellen’s remarks. There are market expectations that the Fed will resort to one more round of rate hike this year in December and the remarks of Yellen did little to sway that anticipation, according to market watchers.

December 12-133 are the dates that this year’s last policy meeting would be held by the Fed.

(Adapted from Business-standard.com)

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Categories: Economy & Finance, Strategy, Sustainability

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