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YELLEN: 'The simple message is the economy is doing well'

March 16,2017 01:19

The Fed has not factored in the effects of potential fiscal-policy changes, Yellen said. Higher infrastructure spending and tax cuts could stimulate the economy and inflation faster than the Fed anticipates. Measures of business and consumer confidence ...



Federal
Reserve Board Chair Janet Yellen.
Alex
Brandon/AP

The US Federal Reserve on Wednesday raised interest rates,
affirming the strength of the economy.

"The simple message is the economy is doing well," Federal
Reserve Board Chair Janet Yellen said in a press
conference. "We have confidence in the robustness of the
economy and its resilience to shocks."

The Federal Open Market Committee voted
to raise its benchmark federal funds rate by 25 basis points
to a range of 0.75% to 1%, marking its third increase since the
Great Recession in the late 2000s. This will eventually
increase borrowing costs for credit cards and other
short-term loans.

Yellen said the rate hike did not reflect a reassessment of the
Fed's economic outlook.

The Federal Open Markets Committee projected two
more rate hikes this year, unchanged from its previous
estimate of three in 2017, and showing that it still expects a
slow tightening pace. Only one member of the FOMC — the
Minneapolis Fed's Neel Kashkari — voted against a rate hike.

The Fed has not factored in the effects of potential
fiscal-policy changes, Yellen said.

Higher infrastructure spending and tax cuts could stimulate the
economy and inflation faster than the Fed anticipates. Measures
of business and consumer confidence have surged since the
election, reflecting these expectations.

"It's uncertain just how much sentiment impacts spending
decisions, and I won't say at this point that I've seen hard
evidence of any changes in spending decisions based on
expectations about the future," Yellen said.

"We have plenty of time to see what happens," she said, adding
that the Fed was not speculating on what President Trump's
administration would do. Yellen said she had a brief introductory
meeting with Trump and had met a couple of times with Treasury
Secretary Steven Mnuchin.

As the Fed continues to normalize rates, questions are arising
about how it plans to
shrink the balance sheet it expanded after the financial
crisis. Yellen said the fed funds rate remained the preferred
policy tool, and the Fed has not made a decision on its
reinvestment policy.

She addressed the
surge in market expectations for a rate hike in March, saying
the market's dovishness was likely influenced by the first two
hikes being a year apart.

SEE ALSO: Fed hikes rates

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