NEW YORK (AP) — Federal Reserve Chairwoman Janet Yellen said Tuesday that the Fed still envisions a gradual pace of interest rate increases in light of global pressures that could weigh on the U.S. economy.
Yellen didn't specify a timetable for further hikes to follow the Fed's rate increase in December from record lows. She said the risks to the United States appear limited but cautioned that that assessment is subject to "considerable uncertainty."
Speaking to the Economic Club of New York, Yellen said the central bank is monitoring a global economic slump, sharply lower oil prices and stock market turbulence, which she said have hurt some U.S. consumers and key economic sectors such as manufacturing. She said that because foreign economic growth seems to have further weakened this year, the Fed will "proceed cautiously" in raising rates.
In light of Yellen's comments, most economists expect no hike at the Fed's next meeting — April 26-27 — despite remarks last week from other Fed officials that had raised the possibility of a rate increase then.
"Despite a growing chorus of calls from even centrist-leaning officials to resume raising policy rates, Chair Yellen stuck to the dovish script of the March meeting statement," when the Fed expressed concern about global pressures and kept rates unchanged, said Sal Guatieri, senior economist at BMO Capital Markets.
Investors welcomed Yellen's message that the Fed would move slowly in raising rates. Major U.S. stock indexes turned higher after she began her remarks, reversing an early loss, and bond yields dipped.
Yellen noted that the U.S. job market and housing recovery have lifted the economy close to full health despite the risks that remain. She observed that the economy has benefited from low long-term U.S. borrowing rates. Those rates have been held down by money flowing into U.S. bonds from investors, who have scaled back their expectations for the number of Fed rate hikes this year from four to two at most.
The Fed chairwoman said that while stock prices have largely rebounded to roughly where they were when 2016 began, "in other respects economic and financial conditions remain less favorable than they did" in December, when the Fed raised its key rate modestly after keeping it near zero since 2008, when the financial crisis erupted.
Yellen cautioned that the Fed's expectations for rates will remain subject to change to reflect any significant changes in the U.S. or international economic outlook.
She said she still thought inflation will rise gradually over the next two to three years to the Fed's target of 2 percent annual increases in prices. Inflation has been running below this level for nearly four years. But Yellen warned that if oil prices began falling again, it could have "adverse spillover effects to the rest of the global economy."
Such expressions of concern about risks, which were sprinkled through her speech, help explain why Yellen seems inclined to keep rates unchanged in the near future.
Responding to a question after her speech, Yellen said the Fed foresees U.S. worker productivity, which has been historically low in recent years, eventually rising but said that assessment is "a source of huge uncertainty." Productivity — the average output produced per hour of work — is needed to boost living standards.
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