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Yellen Aims to Let ‘Healthy’ US Economy Coast Along

Janet YellenJanet Yellen

Federal Reserve chair Janet Yellen has said the central bank no longer needs to give the US economy some “oomph”. The Fed has only raised interest rates three times in the last decade—most recently in March—in a bid to encourage economic growth.

But Yellen said the US economy was now “healthy” and required less help from the central bank, BBC reported.

Investors were unmoved by Yellen’s comments, with yields on US Treasury bonds little changed.

Yellen said that “before we had our foot pressed down on the gas pedal trying to give the economy all the oomph we possibly could”.

“Now allowing the economy to kind of coast and remain on an even keel—to give it some gas but not so much that we are pressing down hard on the accelerator—that’s a better stance of monetary policy,” she said at the University of Michigan’s Ford School of Public Policy.

The Fed raised rates in March for only the third time since the Great Recession, and most Fed officials expect the central bank to raise rates at least two more times this year.

Yellen’s comments largely echoed what she has said since then, and did not offer any new color on the timing of the rate hikes, or of the Fed’s eventual reduction of its $4.5 trillion balance sheet.

“We think a gradual path of increases in short-term interest rates can get us to where we need to be, but we don’t want to wait too long to have that happen,” she said.

In her comments, which came in the form of a discussion led by Susan M. Collins, dean of the university, Yellen expressed concerns about moves in Congress to limit the central bank’s independence.

She specifically mentioned legislation that would subject the Fed’s decision on interest-rate policies to review by the Government Accountability Office, the auditing arm of Congress. She also cited a proposal to require the Fed to follow a specific formula for setting interest rates with any deviation from that formula subject to GAO reviews.

 “Our independence is under some threat,” Yellen said, citing the various bills that have been introduced. She said these changes could end up harming the Fed’s ability to manage the economy to promote low unemployment and guard against accelerating inflation.

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