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23 November 2017
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| Federal Reserve Chair Janet Yellen (The Total Investment & Insurance Solutions) |
Federal Reserve Chair Janet Yellen said Tuesday that the biggest
challenge facing the central bank in coming years will be to craft an interest
rate policy that avoids putting the economy through a "boom-bust"
cycle.
She said that going forward, the Fed will be faced with a delicate
balancing act: It will need to move rates up at a pace that allows the labor
market to improve and inflation to move toward the Fed's target. This while not
delaying hikes to the point where the Fed is forced to push rates up so quickly
that it threatens to throw the country into recession. The Total Investment & Insurance Solutions
Yellen's comments at New York University echoed previous remarks on
inflation, indicating that the Fed is still preparing to boost rates again in
December, its third hike this year. The
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"Moving monetary policy too slowly ... has risks," Yellen
said, particularly if unemployment, already at 4.1 percent, the lowest in
nearly 17 years, begins to fall even more quickly. That could trigger a sudden
jump in inflation, forcing the Fed to respond with more aggressive rate hikes
that could spell the end of the current economic expansion, already the third
longest in history.
"We don't want a boom-bust situation," Yellen said.
As she has in the past, Yellen said Fed officials remain puzzled why
inflation, which had begun moving toward the Fed's 2 percent target, has
retreated for several months this year. She said officials still believe this
is being caused by temporary factors such as a price war among cellphone
companies but that the Fed needs to monitor inflation carefully.
Yellen's appearance sponsored by NYU's Stern School of Business came one
day after she submitted a resignation letter to President Donald Trump, saying
she will leave the central bank's board when Jerome Powell is confirmed as her
successor as Fed chairman. The Total
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Yellen, the first woman to head the central bank, was not chosen by
Trump for a second four-year term as chairman, becoming the first Fed leader
not to be offered a second term in nearly four decades.
Yellen, who participated in a discussion at NYU with Mervy King, the
former head of the Bank of England, was not asked about her feelings about not
getting a second term. But she did say in answer to a question that she had
enjoyed good relationships with officials in both the Obama and Trump
administrations.
She noted she has met regularly with Treasury Secretary Steven Mnuchin
and Gary Cohn, the head of the president's National Economic Council.
"These interactions follow certain rules," Yellen said.
"The first rule is that the Federal Reserve is independent within the
government and the Fed has to make its own decisions about monetary
policies."
She said all the administration officials she met with during her four
years as Fed chair understood the importance of the Fed's independence.
Powell, a Republican who has been on the Fed board since 2012, will have
his Senate confirmation hearing next week. He is expected to have little
trouble winning Senate approval.The
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