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Saturday, May 30, 2020  Spokane, Washington  Est. May 19, 1883
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Yellen navigates tricky path on interest rates

Yellen
Yellen
By Martin Crutsinger Associated Press

WASHINGTON – Federal Reserve Chair Janet Yellen navigated the tricky job of managing expectations on Tuesday in her first public comments on interest rate policy in more than two months.

She wanted the world to know the Fed isn’t ready to raise rates from record lows. The job market is still healing and inflation is too low, she said. At the same time, Yellen signaled that the Fed is moving closer to a rate hike by sketching the steps the central bank would take when it deemed the time was right.

In delivering the Fed’s semiannual economic report before the Senate Banking Committee, Yellen tried to balance the public’s thirst for information on the Fed’s future plans, while giving the central bank as much flexibility as possible to tweak monetary policy on its own terms.

The Fed has two mandates: maximum employment and price stability. The dilemma Yellen faces now is that the two measures are heading in opposite directions.

Yellen told lawmakers that the U.S. economy is making steady progress toward what the Fed defines as “maximum employment” – an unemployment rate between 5.2 percent and 5.5 percent. The jobless rate in January stood at 5.7 percent, down from a high of 10 percent in late 2009. Yellen, however, noted the labor market had not totally healed, in large part because wage growth has been weak.

“Considerable progress has been achieved in the recovery of the labor market, though room for improvement remains,” Yellen said.

Inflation is a thornier issue. The Fed’s goal is for inflation to hit 2 percent annually. But for more than two years, inflation has been rising well below that level. It has retreated further from the Fed’s target in recent months due to the stronger dollar and lower oil prices.

After Yellen’s remarks, private economists weighed in with their forecasts. Many said a rate hike looks likely in June. Others said September.

“The Fed is trying to manage a difficult situation in dealing with the uncertainty surrounding the economic outlook,” said Paul Edelstein, director of financial services at Global Insight. “Yellen sees a path to rate hikes but knows the value of maintaining discretion.”

Meanwhile, investors liked what they heard from Yellen, who reiterated that the Fed would remain “patient” about raising interest rates as it waits for the economy to improve further. The Dow Jones industrial average and the S&P 500 closed at record highs, beating the marks they set Friday.

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