Fed Chair Janet Yellen, speaking after the central bank’s latest policy statement, said USA growth was looking stronger and rate increases would be needed to keep the economy from overheating and fueling high inflation.
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United States Federal Reserve Chair Janet Yellen holds a news conference following the two-day Federal Open Market Committee meeting in Washington, U.S., September 21, 2016.
The Fed also projected a less aggressive rise in interest rates next year and in 2018, and cut its longer-run interest rate forecast to 2.9% from 3.0%.
Yellen also declined to speak on tariffs, one of Trump’s key issues, nor would she speculate on the effect of the presidential election on the economy Though, for what it’s worth, the next Fed meeting and rate decision are November 1 and 2, just six days before Election Day.
It added that its rate-setting committee had decided against raising rates “for the time being”, until there was more evidence of progress toward its employment and inflation objectives. “Although the unemployment rate is little changed in recent months, job gains have been solid on average”.
But he called the Fed statement in its whole “unambiguously more hawkish than in July”, predicting a hike in December. It expects the economy to expand just 1.8 percent this year and by an nearly equally sluggish 2 percent in both 2017 and 2018. The December 2015 Fed rate hike didn’t help deposit rates. In the future, the FOMC sees two hikes in 2017 and three each in 2018 and 2019 that would bring the funds rate to about 2.625 percent, assuming that each increase would come in quarter-point increments.
Ahead of the announcement, Lawrence Summers, former Director of the NEC for President Obama, fired off a series of tweets urging the Fed not to raise.
Julien Scholnick, manager of the Western Asset Core Bond fund and Western Asset Intermediate Bond fund, said the Fed’s medium-term outlook on inflation and growth could mean it backs out of a rate rise in December.
“They don’t want to be accused of bursting a bubble or being unprepared, choking off the recovery too soon…the Fed doesn’t want to go down the negative-rate path and it wants to normalize in a slow, gradual way when the economy is ready”, she said.
“It’s completely reasonable for there to be dissent and I think group think leads to way more problems than it solves”.
GDP growth projections: The median projection for growth of inflation-adjusted gross domestic product (GDP) is 1.8 per cent this year.
Federal Reserve Bank of Kansas City President Esther George, Federal Reserve Bank of Cleveland President Loretta Mester and Federal Reserve Bank of Boston President Eric Rosengren voted no on holding rates steady. Those minutes indicated that the Fed might not raise interest rates until December or sometime next year.
“The statement is much more hawkish than I thought it would be”, said Stephen Stanley, chief economist at Amherst Pierpont Securities in NY, who said he expects a rate increase in December.
Yellen says this makes her believe that people who’ve been discouraged are returning to the labor force because robust job growth has convinced them, “Hey, maybe I’ve finally got a shot at getting a job”.
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The US Federal Reserve on Wednesday left the interest rate unchanged on expected lines. “Circle Dec. 14 on your calendar, because the Fed has sent a clear signal that we’re on track for a rate hike if conditions hold”.
