WASHINGTON • The US Federal Reserve will likely need to raise interest rates at an upcoming meeting, chairman Janet Yellen said yesterday, although she flagged much uncertainty over economic policy under the Trump administration.
She said delaying rate increases could leave the Fed's policymaking committee behind the curve and eventually lead it to hike rates quickly, which could cause a recession.
"Waiting too long to remove accommodation would be unwise," Dr Yellen said in prepared remarks before the Senate Banking Committee, citing the central bank's expectations that the job market will tighten further and that inflation would rise to 2 per cent.
"At our upcoming meetings, the committee will evaluate whether employment and inflation are continuing to evolve in line with these expectations, in which case a further adjustment of the federal funds rate would likely be appropriate."
Dr Yellen did not say if the Fed expected the economy would warrant three interest rate hikes this year, as it last signalled in December. Nor did she give indications whether the first rate hike of the year might come at its next meeting in March or at the June meeting, which is when most analysts expect a rate increase.
It was Dr Yellen's first appearance in Congress since Republicans took control of the White House and both Houses of the legislature and she nodded to the uncertainties over the direction of US economic policy. "Changes in fiscal policy or other economic policies could potentially affect the economic outlook," she said. "It is too early to know what policy changes will be put in place or how their economic effects will unfold."
President Donald Trump has announced a rollback of financial regulation with few details and there is no clarity on the size and scope of the tax cuts he has promised, while possible new taxes on imports and increased infrastructure spending could boost inflation.
Inflation has stayed persistently below the Fed's 2 per cent target for several years and Dr Yellen said it was "reassuring" that market- based measures of inflation compensation had recently risen, though she noted they remain low.
She said she did not want to weigh in on specific tax and spending proposals, but she urged policymakers to consider the importance of making US businesses more efficient, which economists believe is essential to raising living standards over the long term.