Federal Reserve Chair Janet Yellen said Friday another interest rate increase could be “appropriate” later this month if US employment and inflation remain in line with expectations.
Yellen also defended the Fed’s performance, saying it has not been too slow to raise the benchmark lending rates, given the tepid recovery and sluggish inflation.
The US central bank last raised the federal funds rate in December, only the second increase in a decade, but is widely expected to hike again at the March 14-15 policy meeting given the recent upward move in inflation.
The Fed’s policy-setting rate committee “will evaluate whether employment and inflation are continuing to evolve in line with our expectations, in which case a further adjustment of the federal funds rate would likely be appropriate,” Yellen said.
However, in her speech prepared for delivery to a Chicago business group, Yellen said central bankers continue to believe they will only need to raise rates “gradually” assuming the economic data “continue to come in about as we expect.”
But she cautioned that monetary policy “cannot be and is not on a preset course.”
In the face of some critics, even among Fed officials, that the central bank risks allowing inflation to rekindle by raising rates so slowly, Yellen defended the committee’s performance.
Waiting too long to raise rates could mean the Fed has to hike more rapidly at some point, which “could risk disrupting financial markets and pushing the economy into recession.”
However, Yellen said, “I currently see no evidence that the Federal Reserve has fallen behind the curve, and I therefore continue to have confidence in our judgment that a gradual removal of accommodation is likely to be appropriate.”
Still, she said, unless something worsens the economic outlook “the process of scaling back accommodation likely will not be as slow as it was in 2015 and 2016.”
Many economists have pointed to the Fed’s preferred measure of inflation, which recently reached a targeted two percent annual rate, but Yellen and other Fed officials have noted that higher energy prices are contributing to that increase.
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