Friday / May 24.
HomeMarketsFed reluctant to delay rate rise ‘for too long’

Fed reluctant to delay rate rise ‘for too long’

Janet Yellen, the Fed chair, is signalling that the US central bank is reluctant to delay its next increase in short-term interest rates “for too long”.

Ms Yellen is due to say on Thursday morning that as the Fed sees the case for a rise in rates continuing to strengthen, it “must remain forward-looking in setting monetary policy”.

“Were the [monetary policy committee] 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 will say at a congressional hearing, according to prepared remarks.

“Moreover, holding the federal funds rate at its current level for too long could also encourage excessive risk-taking and ultimately undermine financial stability.”

Last Friday Stanley Fischer, vice-chair of the Federal Reserve Board, laid the ground for a second increase in short-term interest rates, saying the case for gradually raising rates was “quite strong” although policy was not on a preset course.

Ms Yellen is due to reiterate that an “increase could well become appropriate relatively soon if incoming data provide some further evidence of continued progress toward the committee’s objectives”.

Her remarks on Thursday will be her first since last week’s presidential election, but they do not contain a reference to Donald Trump’s victory.

Some of Mr Trump’s advisers have said his election will unleash a policy shift away from monetary policy towards fiscal measures in the coming months.

Mr Fischer also said the Fed would welcome greater fiscal support for the economy amid signs that Mr Trump and the Republican-dominated Congress are preparing for tax cuts and larger budget deficits.

Source link