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Friday, July 10, 2015

Yellen: Recent Developments and the Outlook for the Economy

Janet Yellen says she expects the Fed to begin raising the federal funds rate later this year:

... My own outlook for the economy and inflation is broadly consistent with the central tendency of the projections submitted by FOMC participants at the time of our June meeting. Based on my outlook, I expect that it will be appropriate at some point later this year to take the first step to raise the federal funds rate and thus begin normalizing monetary policy. But I want to emphasize that the course of the economy and inflation remains highly uncertain, and unanticipated developments could delay or accelerate this first step. We will be watching carefully to see if there is continued improvement in labor market conditions, and we will need to be reasonably confident that inflation will move back to 2 percent in the next few years.
Let me also stress that this initial increase in the federal funds rate, whenever it occurs, will by itself have only a very small effect on the overall level of monetary accommodation provided by the Federal Reserve. Because there are some factors, which I mentioned earlier, that continue to restrain the economic expansion, I currently anticipate that the appropriate pace of normalization will be gradual, and that monetary policy will need to be highly supportive of economic activity for quite some time. The projections of most of my FOMC colleagues indicate that they have similar expectations for the likely path of the federal funds rate. But, again, both the course of the economy and inflation are uncertain. If progress toward our employment and inflation goals is more rapid than expected, it may be appropriate to remove monetary policy accommodation more quickly. However, if progress toward our goals is slower than anticipated, then the Committee may move more slowly in normalizing policy. ...

My sentiments are with Charlie Evans:

Fed’s Evans Favors Mid-2016 for Interest-Rate Increase: Federal Reserve Bank of Chicago President Charles Evans said the U.S. central bank should hold off on an interest-rate increase until mid-2016 as concerns remain over low inflation, risks abroad and the strength of the economy at home. ...
“I just don’t see why we should be in a hurry with all of the risks we face. A little more time doesn’t hurt,” Mr. Evans said...
Mr. Evans, who is a voting member of the Fed’s rate-setting committee this year, in remarks last month said he won’t support a rate increase before early 2016. His views on timing continue to put him at odds with most of his colleagues, who at the June meeting signaled the Fed is moving toward a rate increase later this year. ...

    Posted by on Friday, July 10, 2015 at 10:27 AM Permalink  Comments (30)


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