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Economy steady enough for more hikes, bond wind down, says Janet Yellen

According to Yellen's testimony economy is currently on an even keel, near or beyond full employment

Reuters  |  Washington 

Janet Yellen
Janet Yellen

The United States is healthy enough to absorb further gradual rate increases and the slow wind down of the massive bond portfolio accumulated by the during the financial crisis, Fed Chair said in prepared testimony to be delivered to Congress Wednesday morning.

In what may be one of her last appearances on Capitol Hill, Yellen depicted an that, while growing slowly, continued to add jobs, benefited from steady household consumption and a recent jump in business investment, and was now being supported as well by stronger economic conditions abroad.

The Fed "continues to expect that the evolution of the will warrant gradual increases in the federal funds rate over time," Yellen said, while reductions in the Fed's more than $4 trillion in securities are likely to begin "this year."

Yellen will present her latest economic summary to the at 10 a.m. (1400 GMT), after which committee members will question her. Her appearances before the House panel have sometimes involved sharp exchanges with lawmakers who think the Fed's influence over the has grown too large, and who want policymakers to be guided more closely by a mathematical rule for setting interest rates.

In a report released last week the Fed compared its current policy to that prescribed by a variety of such rules - pointing out that the choice of a rule itself involved judgments that would lead to vastly different outcomes. Yellen referred House lawmakers specifically to that section of the report in her testimony.

Yellen's appearance comes as the mulls whether to replace her when her term ends in February.

By her testimony today, the is currently on an even keel, near or beyond full employment. Interest rates are rising, and "would not have to rise all that much further" to reach what the Fed considers a neutral rate that neither encourages nor discourages spending and investment, Yellen said. The reduction in the balance sheet, which will begin slowly as the Fed reinvests only a portion of the holdings that mature each month, will mark the final exit from crisis-related policies.

Though a recent dip in inflation has been of concern among Fed officials who want to see surer progress toward the central bank's 2 percent inflation goal, Yellen ascribed it to "a few unusual reductions in certain categories of prices" that would eventually drop out of the calculation.

Otherwise, she said, the appeared to be in a virtuous loop of hiring, spending and investment that "should increase resource utilization somewhat further, thereby fostering a stronger pace of wage and price increases."

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

First Published: Wed, July 12 2017. 18:38 IST