WASHINGTON – Federal Reserve Chair Janet Yellen appears unruffled by incoming President Donald Trump’s victory last week.
Her remarks to Congress Thursday suggest that the central bank is on track to raise interest rates at its meeting in December, one month before Trumps takes office. She said she has no plans to step down before her four-year term ends in early 2018, reiterated the Fed’s political independence and vigorously defended tougher bank regulations established in the wake of the financial crisis.
An improving U.S. economy has bolstered the case for raising interest rates, Yellen told Congress’ Joint Economic Committee. Economic data since Fed policymakers gathered in early November reinforced her view that the economy is making progress toward the Fed’s goals on employment and inflation. She said that at the meeting, she and her colleagues believed that the case for a rate increase “had continued to strengthen and that such an increase could well become appropriate relatively soon.”
Analysts viewed Yellen’s comments as an effort to put financial markets on notice that a rate hike is likely to occur at the Fed’s last meeting of the year on Dec. 13-14. They noted that she dismissed a suggestion that increased market uncertainty after Trump’s election might be cause for a delay.
Asked whether it might be better to push back a move until January, Yellen said that uncertainty surrounding Trump’s proposals for tax cuts and infrastructure spending could well last for a good deal longer than one month.
“Yellen’s testimony before Congress … further cemented in place expectations that the Fed will hike rates next month,” said Michael Feroli, senior economist at JPMorgan.
Asked about her own future, Yellen said it was “fully my intention” to remain as Fed chair until her four-year term ends on Feb. 3, 2018. She said she could not imagine any circumstance that would cause her to leave early, addressing speculation that she might step down once Trump takes office, given his critical comments of her during the election campaign.
The Fed raised its key interest rate in December 2015 and projected that it could raise rates as many as four times in 2016. But it deferred as the U.S. economy went through a prolonged soft-patch. The rate has remained in a range of 0.25 per cent to 0.5 per cent for the entire year. The rate had been at a record low near zero for seven years.
Economists are forecasting that the Fed will raise rates by a quarter-point in December and then will boost rates two more times in 2017. Yellen stressed in her testimony that the slow recovery and absence of inflation pressures should allow the Fed to move gradually in raising its key rate, the federal funds rate.
“Gradual increases in the federal funds rate will likely be sufficient to get to a neutral policy stance over the next few years,” Yellen said, referring to the point where the funds rate is neither promoting economic growth nor slowing growth.
As measured by the gross domestic product, the economy grew at a 2.9 per cent annual rate in the July-September quarter, the government has estimated, more than twice the rate in the April-June quarter. The unemployment rate is 4.9 per cent, around the level typical of a healthy economy, down from 10 per cent in 2009.
In addition to firmly stating that she has no plans of leaving the Fed before her term as chair is complete, Yellen also made clear that her views on bank regulation differ from Trump’s.
Yellen gave a strong defence of the Dodd-Frank Act, passed by Congress in 2010 to increase financial market regulations in an effort to prevent a repeat of the 2008 financial crisis. After the country lived through a “devastating financial crisis,” Yellen said that “I would not want to see the clock turned back on all the improvements we have made.”
Trump and other Republicans have attacked Yellen and other federal bank regulators for imposing too-restrictive rules on banks, pledging that they will seek to repeal major parts of the 2010 law.
This story has been corrected to show that Yellen’s term ends Feb. 3, 2018, not January 2018.