Yellen: “Economic Outlook is Uncertain”

Federal ReserveAt Tuesday’s meeting with the Senate Committee on Banking, Housing, and Urban Affairs, Federal Reserve Board Chairwoman Janet L. Yellen stated positive remarks about the state of economy and increasing job growth in the semiannual Monetary Policy Report, but declined to say anything definite about a hike in the interest rates.

“The FOMC is committed to promoting maximum employment and price stability, as mandated by the Congress,” she said. “The Committee maintained an unchanged target range for the federal funds rate for most of the year in order to support improvement in the labor market and an increase in inflation toward 2 percent.”

Yellen said that the Committee raised the target range for the federal funds rate by a quarter of a percentage point at its December meeting, from 0.5 percent to 0.75 percent.

“Inflation moved up over the past year, mainly because of the diminishing effects of the earlier declines in energy prices and import prices,” she explained. “Total consumer prices as measured by the personal consumption expenditures (PCE) index rose 1.6 percent in the 12 months ending in December, still below the FOMC’s 2 percent objective but up 1 percentage point from its pace in 2015.”

Yellen did admit that the economic outlook is uncertain, and monetary policy is not on a preset course. “FOMC participants will adjust their assessments of the appropriate path for the federal funds rate in response to changes to the economic outlook and associated risks as informed by incoming data,” she said.

At its meeting that concluded early this month, the Committee left the target range for the federal funds rate unchanged but reiterated that it expects the evolution of the economy to warrant further gradual increases in the federal funds rate to achieve and maintain its employment and inflation objectives.

“As I noted on previous occasions, waiting too long to remove accommodation would be unwise,” Yellen stated, “Potentially requiring the FOMC to eventually raise rates rapidly, which could risk disrupting financial markets and pushing the economy into recession.”

She cited the fact that Incoming data suggest that labor market conditions continue to strengthen and inflation is moving up to 2 percent, consistent with the Committee’s expectations. “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.”

Curt Long, Chief Economist for the National Association of Federally-Insured Credit Unions (NAFCU) interpreted Yellin’s remarks to mean that a rate hike is on the horizon. “Chair Yellen provided an upbeat assessment of recent economic progress,” he said. “While she left herself and the rest of the FOMC plenty of room to maneuver, she did suggest that a March rate hike is on the table. Investors remain somewhat skeptical, but a strong jobs report in three weeks could tilt expectations toward a move.”

In response to President Trump’s allegation that Dodd-Frank is a “disaster” and that many of his friends can’t get loans due to “strangling” regulations, Yellen said an “extremely low number” of small businesses had complained of access to credit as their main problem.

To support her claim, she quoted some numbers from a National Federation of Independent Businesses survey showing that just 4 percent of respondents are unable to get the loans they need.

“We have seen healthy growth in actual lending in the economy,” Yellen said, noting that bank commercial and industrial lending has exceeded its 2008 peak.


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