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Yellen Says Case for a Fed Interest Rate Increase Has Grown Stronger Yellen Sees Stronger Case for Interest Rate Increase
(about 1 hour later)
GRAND TETON NATIONAL PARK, Wyo. — Janet Yellen, the Federal Reserve chairwoman, said on Friday the Fed remains on course to raise its benchmark interest rate in the coming months as the economy keeps chugging along. GRAND TETON NATIONAL PARK, Wyo. — Janet L. Yellen, the Federal Reserve chairwoman, said on Friday that she saw a stronger case for raising the Fed’s benchmark interest rate, suggesting the central bank was likely to act in the coming months.
“I believe the case for an increase in the federal funds rate has strengthened in recent months,” Ms. Yellen said. She cited “the continued solid performance of the labor market and our outlook for economic activity and inflation.” “In light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months,” Ms. Yellen said.
Ms. Yellen’s remarks signaled the Fed will consider raising rates at its next meeting, in mid-September, but most analysts think the central bank is unlikely to have the confidence to act before its final meeting of the year, in December. The remarks, delivered at an annual policy conference here, indicated that the Fed would consider raising rates at its next meeting in mid-September, though most analysts say they think the Fed is more likely to move in December.
Ms. Yellen made the comments in the prepared text of a speech she is scheduled to deliver on Friday at an annual policy conference in the shadow of the Grand Tetons. It follows similar remarks by other Fed officials in recent days that seem aimed at jarring the complacency of investors betting the Fed will continue to procrastinate. Fed officials remain nervous about the fragility of this long-but-tepid period of economic growth. The federal government’s next report on the strength of job growth, due Sept. 2, could loom large in their calculus.
The Fed raised interest rates in December for the first time since the financial crisis, and predicted four more rate increases this year. Instead it has kept its benchmark rate in a range between 0.25 percent and 0.5 percent. Low rates encourage borrowing and risk-taking, which can bolster economic growth. Raising rates will gradually reduce that stimulus, and the Fed so far has been reluctant to take its foot of the gas. The Fed also may be inclined to wait until after the presidential election in November, like earlier this year, when Fed officials said they did not want to raise rates before Britain’s referendum on European Union membership.
John Williams, president of the Federal Reserve Bank of San Francisco, said last week in Anchorage, Alaska, that a rate increase “makes good sense.” The Fed raised interest rates in December for the first time since the financial crisis, and predicted four more rate increases this year. Instead it has kept its benchmark rate in a range between 0.25 and 0.5 percent. Low rates encourage borrowing and risk-taking, which can bolster economic growth. Raising rates will gradually reduce that stimulus, and the Fed so far has been reluctant to take its foot off the gas.
But Fed officials are concerned that investors have become too complacent, betting that the Fed is likely to wait until next year before raising rates even as job growth has shown strength. Ms. Yellen’s remarks are likely to jar that complacency, reinforcing similar remarks in recent weeks by other Fed policy makers.
John Williams, president of the Federal Reserve Bank of San Francisco, said last week in Anchorage that a rate increase “makes good sense.”
On Thursday, Mr. Williams told a group of activists protesting against a rate increase that the Fed was still committed to reducing unemployment, but that he thought a lower level of stimulus was sufficient to support continued growth.On Thursday, Mr. Williams told a group of activists protesting against a rate increase that the Fed was still committed to reducing unemployment, but that he thought a lower level of stimulus was sufficient to support continued growth.
“It’s not about trying to stop the economy from growing,” he said during an unusual meeting attended by 10 Fed policy makers and more than 100 activists brought to Jackson Hole by the Fed Up campaign, which is pressing the Fed to keep rates low. “We’re going to keep this economy growing; we are going to run it hot.”“It’s not about trying to stop the economy from growing,” he said during an unusual meeting attended by 10 Fed policy makers and more than 100 activists brought to Jackson Hole by the Fed Up campaign, which is pressing the Fed to keep rates low. “We’re going to keep this economy growing; we are going to run it hot.”
Most of Ms. Yellen’s speech on Friday was devoted to a longer-term question: whether the central bank will be ready when the next recession comes.Most of Ms. Yellen’s speech on Friday was devoted to a longer-term question: whether the central bank will be ready when the next recession comes.
The Fed predicts that it will not raise interest rates nearly as high as during previous periods of economic growth. That means it won’t be able to match the depth of the rates cuts it used to combat previous recessions. But Ms. Yellen said the Fed in recent years had shown that other kinds of stimulus could also be effective.The Fed predicts that it will not raise interest rates nearly as high as during previous periods of economic growth. That means it won’t be able to match the depth of the rates cuts it used to combat previous recessions. But Ms. Yellen said the Fed in recent years had shown that other kinds of stimulus could also be effective.
Those tools include commitments to keep rates low for an extended period and large-scale asset purchases, which reduce the supply of available investments, forcing investors to accept lower interest rates. Those tools include commitments to keep rates low for an extended period, and large-scale asset purchases, which reduce the supply of available investments, forcing investors to accept lower interest rates.
“Even if average interest rates remain lower than in the past, I believe that monetary policy will, under most conditions, be able to respond effectively,” she said.“Even if average interest rates remain lower than in the past, I believe that monetary policy will, under most conditions, be able to respond effectively,” she said.
Ms. Yellen cited a recent analysis by David Reifschneider, a Fed economist, that found the Fed’s new tools sufficient to compensate for the weakening of its traditional tool of lowering short-term interest rates.
She added that the Fed was “not actively considering” a range of other possible policy responses to a future crisis. These include buying assets other than Treasury securities, like municipal bonds, or raising the Fed’s inflation target above 2 percent.
Ms. Yellen also noted that fiscal policy makers could play a role in addressing any future crisis. In particular, she said the government should consider policies that might increase the productivity of the American work force.
“Finally, and most ambitiously, as a society we should explore ways to raise productivity growth,” she said. Among the possibilities, she mentioned investment in education and infrastructure and reductions in regulation.