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Yellen says Fed watching the slowdown in inflation

Thursday, July 13, 2017

Associated Press


Federal Reserve Chair Janet Yellen raised the possibility Wednesday that the Fed would consider slowing the pace of its interest rate increases if inflation remained persistently below its target level.

For the moment, Yellen signaled no change in policy, indicating the three rate hikes since December will likely be followed by one more hike this year. She also said the Fed wants to begin gradually trimming its massive $4.5 trillion in bond holdings later this year, a move that will also put upward pressure on interest rates.

But Wall Street investors took heart from her slightly more cautious view of a recent puzzling slowdown in inflation, believing it could signal the Fed might be willing to put further rate hikes on pause.

“Monetary policy is not on a pre-set course,” Yellen told lawmakers on the House Financial Services Committee. “We’re watching it very closely and stand ready to adjust our policy if it appears that the inflation undershoot will be persistent.”

The Fed’s key policy rate, the federal-funds rate, currently stands in a range of 1 percent to 1.25 percent. The last three increases occurred in December, March and June. Many analysts believe the Fed will raise rates one more time this year, either in September or December.

Yellen’s appearance took on a bit of a valedictory tone, given that her current four-year term as chairwoman will end in early February before the next round of congressional hearings.

At one point, she acknowledged her appearance Wednesday before the House panel and today before the Senate Finance Committee could be her last time to present the Fed’s semi-annual Monetary Policy Report to Congress.

Yellen, the first woman to head the Fed in the central bank’s 100-year history, was asked several times if she would accept another term if President Donald Trump offered it. She didn’t provide a direct answer.