Fed chief reassures investors on interest rate policy

Federal Reserve chairwoman Janet Yellen holding a news conference following a Federal Open Market Committee meeting in Washington, DC on March 15, 2017.
Federal Reserve chairwoman Janet Yellen holding a news conference following a Federal Open Market Committee meeting in Washington, DC on March 15, 2017.PHOTO: AFP

WASHINGTON • Federal Reserve chair Janet Yellen sought to reassure investors that the US central bank's latest interest rate increase was not a paradigm shift to a trigger-happy policy driven by fears of faster inflation.

Speaking to reporters after the Fed's quarter percentage-point move on Wednesday, Dr Yellen said the central bank was willing to tolerate inflation temporarily overshooting its 2 per cent goal, and that it intended to keep its policy accommodative for "some time".

"The simple message is the economy's doing well. We have confidence in the robustness of the economy and its resilience to shocks," she said.

As a result, the Fed is sticking with its policy of gradually raising interest rates, Dr Yellen said. In their first forecasts in three months, Fed policymakers penciled in two more quarter-point rate increases this year and three next year, unchanged from their projections in December.

Wednesday's decision "does not represent a reassessment of the economic outlook or of the appropriate course for monetary policy", the Fed chief said.

Speculation of a move aggressive Fed raising the number of projected rate hikes this year and even upgrading the levels of inflation and growth anticipated had mounted in recent days after a host of central bank officials, including Dr Yellen herself, went out of their way to telegraph to financial markets that a rate hike was imminent.

None of that materialised.

The US economy has mostly met the central bank's goals of full employment and stable prices, and may get more support if President Donald Trump delivers on his vows to cut taxes, lift infrastructure spending and ease regulations.

Still, the data do not show an economy that is heating up rapidly - a point Dr Yellen herself made. In fact, the economy may have "more room to run", she said.

Stronger business and consumer confidence has not yet translated into increased investment and spending, said Dr Yellen.

"It's uncertain just how much sentiment actually impacts spending decisions, and I wouldn't say at this point that I have seen hard evidence of any change in spending decisions," she said. "Most of the business people that we've talked to also have a wait- and-see attitude."

Retail sales last month grew at the slowest pace since August, a government report showed earlier on Wednesday.

Asked about the potential for a fiscal boost, Dr Yellen made clear the Fed is still waiting for more concrete policy plans to emerge from the Trump administration before adapting monetary policy in reaction.

"There is great uncertainty about the timing, the size and the character of policy changes that may be put in place," she said. "I don't think that's a decision or set of decisions that we need to make until we know more about what policy changes will go into effect."

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on March 17, 2017, with the headline 'Fed chief reassures investors on interest rate policy'. Print Edition | Subscribe