Yellen stresses Fed foresees gradual pace of rate hikes and will ‘proceed cautiously’

NEW YORK – Fed Chair Janet Yellen said Tuesday the Fed still envisions a gentle pace of interest rate increases considering global pressures that could weigh on the U.S. economy.

Yellen did not specify a timetable for further hikes to follow along with the Fed’s rate rise in December from record lows. She said the risks towards the Usa remain limited but cautions that that assessment is susceptible to “considerable uncertainty.”

In prepared remarks towards the Economic Club of recent York, the Fed chair said the central bank is monitoring the results of the global economic slump, lower oil prices and stock market turbulence. She asserted given the risks, the Fed will “proceed cautiously” in raising rates.

Related

Flood of central bank moves have steered economy clear of recession, but can’t lift world out of its rutBank of Canada may start revealing its view of federal budget’s impact on policy, economy

Most economists expect no hike at the Fed’s next policy meeting, to become held April 26-27.

Yellen’s remarks around the Fed’s economic outlook and rate of interest policy happen to be long awaited by investors attempting to divine the timing from the next rate increase.

When the Fed met two weeks ago, it kept its key rate unchanged and signalled the probability of just two rate increases this year. That was half the number that Fed officials had envisioned in December, when they raised their benchmark rate from record lows – their first hike in nearly a decade. Consequently, most economists figured no rate increase may likely occur before June.

But comments last week from the 3 of the Fed’s regional bank presidents had raised the possibility that the central bank will decide to raise rates in April. One of them, Dennis Lockhart of the Fed’s Atlanta regional bank, said in a speech that he thought the strength of the newest U.S. economic data could justify an interest rate increase as early as April.

The views expressed by Lockhart, who is considered a centrist in the method of rates of interest, was echoed by a few other Fed regional bank presidents.

We took the first small step having a modest rate hike in December, and the future is going to be, as we’ve said repeatedly, gradual and thoughtful



Lockhart suggested that despite global economic weakness, the U.S. employment market is nearing full health – a vital condition for a rate increase. Next he said he believed that inflation, that has remained persistently below the Fed’s two per cent target rate for pretty much 4 years, would likely begin obtaining later around.

The message from Lockhart plus some other regional bank presidents seemed to depart in the signal sent by the statement the Fed issued March 16 by this news conference Yellen held afterward. The theme then was of a slower pace of rate increases considering global pressures that risk slowing the U.S. economy.

In a speech in Singapore on Tuesday, John Williams, president from the Fed’s San Francisco regional bank, said his outlook for the U.S. and also the global economies remains largely unchanged in the last few months. He explained the Fed has made it “abundantly clear” in its communications that it expects to boost rates gradually.

“We took the very first small step with a modest rate hike in December, and the future will be, as we’ve said repeatedly, gradual and thoughtful,” said Williams, who had suggested last week that a rate hike in either April or June was possible.

Whatever decision the Fed does make in April will hinge on its view of the economy’s durability. Previously week, some reports have produced weaker-than-expected readings, together with a sharp drop in orders for long-lasting product which and tepid consumer spending. Those reports have led some economists to downgrade their forecasts for development in the present January-March quarter from a two per cent annual rate to a lacklustre one per cent.

I don’t think either the worldwide economy or even the U.S. economy are on a sound track at the moment

The consumer spending report also demonstrated that the Fed’s preferred inflation gauge continues to be signalling that inflation remains well below its target level. For that Twelve months that led to February, inflation rose only one percent. “Core” inflation, which excludes the volatile items of food and energy, increased 1.7 per cent.

Because of the subpar inflation and also the weakness in consumer spending, which drives about 70 percent of monetary activity, many economists still say the Fed is going to be cautious about raising rates.

“The numbers show that inflation is nowhere to be found, and consumers are actually on strike,” said Sung Won Sohn, an economics professor at California State University, Channel Islands. “They don’t wish to spend money because of uncertainty in the economy, such as the recent volatility in the stock market.”

Sohn said he thought the economic outlook remained too uncertain to justify any rate hikes at all this season.

“I don’t think either the worldwide economy or even the U.S. economy are on a sound track at the moment,” he explained.