World Economy

Yellen Sees ‘Gradual’ Rate Hikes

Yellen Sees ‘Gradual’ Rate HikesYellen Sees ‘Gradual’ Rate Hikes

By offering a subtle change to her outlook from less than a week ago, Federal Reserve Chair Janet Yellen pushed the prospect of additional interest rate increases further into the future.

The head of the central bank said she and her colleagues were on watch for whether, rather than when, the US economy would show clear signs of improvement, acknowledging the possibility that growth would be slow to pick up, Bloomberg reported.

“Proceeding cautiously in raising the federal funds rate will allow us to keep the monetary support to economic growth in place while we assess whether growth is returning to a moderate pace, whether the labor market will strengthen further, and whether inflation will continue to make progress toward our 2% objective,” Yellen said in testimony Tuesday before the Senate Banking Committee in Washington.

Just six days ago, Yellen said a cautious approach to interest-rate hikes “will allow us to verify” that growth, jobs and inflation are improving.

Yellen, 69, opened two days of semiannual monetary-policy hearings saying that despite her own optimism about the economy’s longer-run prospects, “we cannot rule out the possibility expressed by some prominent economists that the slow productivity growth seen in recent years will continue into the future.”

Growth Decline

Yellen’s remarks move her closer to the argument made for some time by former Treasury Secretary Lawrence Summers that forces holding down growth and interest rates may be long-lasting. St. Louis Fed President James Bullard, who until recently had taken a more hawkish stance on policy, also shifted his views in a paper published last week suggesting the US economy is stuck in a rut for at least the next two to three years.

Responding to questions from lawmakers, Yellen said the odds of a US recession were low. She also said the central bank stood ready to act if needed in the event UK voters decide later this week to leave the EU, causing financial-market turmoil.

“We will closely monitor what the economic consequences will be and are prepared to act in light of that assessment,” she said.

Fed policy makers on June 15 left their benchmark interest rate unchanged and signaled their confidence in the economy’s momentum had wavered after payroll growth slowed in April and May.

Yellen on Tuesday repeated a message she offered last week that, in the short term, the Fed expects the economy to rebound from a disappointing first quarter, and that she continued to foresee “gradual” rate increases without offering a firm timetable.