Yellen’s last appearance before the House committee, in February, was an openly hostile affair.
The tacit nod of approval from the Fed chief is a good sign for Wall Street, as a rejection can be costly, though Yellen also made clear the USA central bank will not hesitate to reject certain plans when it completes its assessment. We’ll know more when the Fed concludes its next two-day policy meeting on July 29.
“We are changing our official cash rate forecast to a terminal rate of 2.00 per cent by the end of this year (previously 2.50 per cent)”, he said.
Yellen strongly rejected the idea. U.S. stock prices held steady, while the dollar rose 0.6 per cent against a basket of currencies, pressuring gold, which is priced in the U.S. dollar.
The Fed’s benchmark rate has been at a record low near zero since December 2008, meaning that borrowing rates for consumers and businesses have been at historic lows.
Many economists peg September for a rate increase, but they see at most only two quarter-point moves this year.
“Looking forward, prospects are favorable for further improvement in the U.S. labor market and the economy more broadly”, she told the committee. Inflation is now running lower than the pace the Fed believes is optimal for a healthy economy.
Yellen told Warren that if the living wills the banks submit are not adequate “we are certainly prepared to say they are not credible”.
Yellen noted a number of areas that had improved.
The unemployment rate for African-Americans was 9.5 percent in June, almost twice the rate of 5.3 percent in the population overall.
“We can’t completely ignore what is happening in the markets”, she said.
The Fed chair listed foreign developments as one of the key uncertainties that could weigh on United States growth in coming months. The political climate in Greece is fragile, it remains to be seen whether the measures approved will be implemented, and as the worldwide Monetary Fund said this week Greece’s debt is unsustainable. She focused on the USA economy’s progress since the financial crisis but also conceded that there are external risks, especially from the situation in Greece and in China. The data was seen as supportive of a Fed rate hike.
Yellen is due to go the Senate Banking Committee Thursday afternoon to discuss the semiannual report.
“There can be no doubt that she indeed is getting ready to start the normalization of interest rates before long”. Higher rates curb gold’s appeal because the metal doesn’t pay interest or give returns like assets such as bonds and equities. In the intervening months some lawmakers have expressed frustration over the fact that the Fed has not released all of the material Congress has requested as part of an investigation of the possible leak of information from the central bank to an economic consulting company in 2012.
“The Fed’s clamor for independence is its underpinning for circumventing any sort of congressional accountability”, Representative Sean Duffy, Republican of Wisconsin, said at a Tuesday hearing on Fed transparency.