Fed’s Yellen: Uncertainties strengthen the case for gradual rate hikes

Yellen’s comments the beginning of the

  • Phased-in approach of rate increases particularly appropriate in light of the low inflation, low-rate neutral
  • Would be unwise to leave its rates until inflation reaches 2%
  • Fed can still reach the 2% inflation target, even if it is under-estimate slack or overestimate inflation expectations
  • The downward pressure on inflation may prove to be unexpectedly persistent
  • There is a «significant» chance that inflation will not stabilize at 2% in the coming years
  • Suggests the labour market is in good health, without too much of a game but not overheating
  • The evidence on the labour market is not definitive, must be «open-minded»
  • FOMC should be wary of too gradually
  • Unwise to keep policy on hold until inflation of 2%
  • Sees the risks of overheating without modest increases over time

These comments came early, on Reuters, and then a few minutes later, Bloomberg led with the title in bold. The headlines of Reuters have been a little more «dovish», then they are more «hawkish» of Bloomberg. What this means is that you should really read the full speech.

«It would be imprudent to pursue a monetary policy on hold until inflation is back to 2 percent,» » she said Tuesday in the text.

«My colleagues and I may have misjudged the strength of the labour market, the degree to which the long-term inflation expectations are consistent with our inflation target, or even the fundamental forces of inflation,» » she said.

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