Yellen: Expect Fed to resume raising rates in coming months

Until then, the details of Trump’s ambitious proposals — for tax cuts for individuals and businesses, greater spending on infrastructure projects, changes to trade deals and a relaxation of regulations — could remain hazy.

“With the uncertainty over fiscal policy likely to last for at least another few months, that means the Fed will probably be on hold until June,” said Paul Ashworth, chief U.S. economist at Capital Economics.

Other analysts say they think that while three Fed rate hikes will occur in 2017, all of them may happen in the second half of the year.

In her first congressional appearance since Trump took office, Yellen avoided making critical observations of the president’s economic ideas. During the campaign, Trump was at times harshly dismissive of Yellen. At one point, he had declared that she should be “ashamed of herself” for, in his view, keeping rates low to favour Democrats.

In her remarks, Yellen did caution that any economic initiatives that significantly swell long-term budget deficits would likely slow growth. But she offered support for part of Trump’s agenda: His efforts to make it easier for smaller banks to lend, in part by liberating them from some rules imposed by the Dodd-Frank financial overhaul law. She said the Fed has been trying to ease the regulatory burden on community banks and is open to doing more.

Yellen said the Fed’s interest rate policies would evolve, in part, from how spending and tax changes enacted by Congress affect economic growth. Right now, she said, “it’s too early to know what policy changes will be put in place or how their economic effects will unfold.”

Trump has argued that his economic initiatives can achieve his goal of doubling annual economic growth to 4 per cent, up from the tepid 2 per cent pace that’s prevailed since the Great Recession ended in 2009. Most economists say 4 per cent annual growth is unrealistic given the nation’s slow-growing population and weak worker productivity growth.

Trump’s new Treasury secretary, Steven Mnuchin, told reporters Tuesday that “there is a tradition of the secretary of the Treasury having ongoing meetings with the head of the Federal Reserve, and I look forward to that now that I am in office, doing that and spending time with her.”

In her testimony Tuesday — the first of two days marking her semiannual report to Congress on interest rate policy — Yellen reiterated that she plans to serve the final year of her four-year term as Fed chair, which ends next February. She will testify to the House Financial Services Committee on Wednesday.

Trump has the opportunity to fill three vacancies on the Fed’s seven-member policymaking board after Daniel Tarullo, a board member who was guiding the Fed’s regulatory efforts, announced Friday that he would resign this spring.

Yellen told senators that she looked forward to working with new members of the Fed board. She said Fed officials still think rate hikes can occur at a gradual pace. But she cautioned, as she has in the past, that “waiting too long to remove accommodation would be unwise, potentially requiring the (Fed) to eventually raise rates rapidly, which could risk disrupting financial markets and pushing the economy into recession.”

Martin Crutsinger, The Associated Press

by Canadian Press

Yellen: Expect Fed to resume raising rates in coming months

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