Yellen warns of delaying rate hike ‘too long’

Thursday, Nov 17 2016

In a prepared speech to the U.S. Congress Joint Economic Committee, Federal Reserve (Fed) Janet Yellen warned of the danger of waiting too long to tighten monetary policy. In her remarks, Yellen referenced the November 2 Fed meeting and stated that policymakers judged back then that an increase in rates could “become appropriate relatively soon if incoming data provide some further evidence of continued progress toward the Committee's objectives.” She further emphasized that the Committee must remain forward looking when setting monetary policy.

“Were the FOMC to delay increases in the federal funds rate for too long, it could end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of the Committee's longer-run policy goals,” she warned. “Moreover, holding the federal funds rate at its current level for too long could also encourage excessive risk-taking and ultimately undermine financial stability,” she added.

Yellen did reiterate that the Fed currently still expects the rate hikes to be “gradual” in order to support its dual mandate of fostering maximum employment and keeping inflation near the 2% target. “This assessment is based on the view that the neutral federal funds rate--meaning the rate that is neither expansionary nor contractionary and keeps the economy operating on an even keel--appears to be currently quite low by historical standards,” she explained.

Euro is currently being traded around 1.0660 area, Sterling is at 1.24 handle, while Aussie is around 0.7460 level.

Source: Investing.com

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