Janet Yellen Testimony Before Congress
Frances Clayton | February 15, 2017, 0:39
Janet Yellen Testimony Before Congress
Wall Street stocks pushed to fresh records again on Tuesday, with financial shares rallying after Federal Reserve Chair Janet Yellen signalled higher interest rates are on their way.
Yellen is expected to testify before the Senate Committee on Banking, Housing, and Urban Affairs starting at 10 a.m. EST.
Speaking to Congress she said delaying rate hikes would be "unwise", and could leave the Fed having to move too fast later, risking causing a recession.
"Inflation moved up over the past year, mainly because of the diminishing effects of the earlier declines in energy prices and import prices".
"Consumer spending has continued to rise at a healthy pace, supported by steady income gains, increases in the value of households' financial assets and homes, favorable levels of consumer sentiment, and low interest rates", she said.
In addition, the personal consumption expenditures index - the Fed's closely watched inflation measure - rose to 1.6 percent in December, still low but heading in the right direction.
Treasury yields, which are sensitive to shifting rate-hike expectations, jumped on Yellen's comments but have walked back a bit.
Still, Yellen's language was a bit surprising after she spent most of a year ago talking about asymmetric risks being to the downside, since the Fed has little traditional ammunition with its key rate still near zero.
The US Fed's policy-setting Federal Open Market Committee (FOMC) raised rates in December for only the second time in a decade, but kept rates steady in January. Greenspan spent almost two decades as Fed chairman during the period that came to be known as the "Great Moderation", which continued until the 2007-08 financial crisis brought it crashing to a halt.
During the recession, the Fed slashed rates almost to zero in a bid to boost economic growth.
"We want to wait to start this process until the process of normalization is well underway", Yellen said.
The dollar also got a lift from Trump's promise last week of a "phenomenal" tax plan that the White House said would include tax cuts for businesses and individuals.
Oil pared gains on Tuesday as concerns about rising supply from USA shale output overshadowed an OPEC-led effort to cut global output, which has supported oil prices in a higher range.
"But a few Japanese exporters are selling dollars at the moment, disappointed that it didn't go even higher after the weekend meeting" of U.S. President Donald Trump and Japanese Prime Minister Shinzo Abe, who apparently did not discuss currency policy or trade protectionism, Ogino said. There are now two empty seats on the seven-member body, and Fed Governor Daniel Tarullo said on Friday he would resign around early April.
"I do intend to complete my term as chair".
Yellen and other Fed bankers have fervently denied the accusations. Critics say could compromise the central bank's independence from the political process.
Next, Yellin next deliver a semiannual report on the Fed's monetary policy before the U.S. House Financial Services Committee. Unnamed congressional leaders have been consulted on the blueprint, the official said.
Stephen G. Cecchetti, a professor at Brandeis International Business School and a former adviser at the Bank for International Settlements in Basel, Switzerland, criticized the letter in a blog post, saying that US regulators have played a major role in shaping international financial regulations in past decades, to the benefit of American consumers and businesses. "I think it's a key part of our regulatory process". "The downside risk in the USA economy is small due to Trump's policies", Masayuki Kichikawa, chief macro strategist at Sumitomo Mitsui Asset Management.
"For the markets, the honeymoon is starting to end with Trump", Thomas Simons, senior economist at Jefferies in NY, told Bloomberg.
Other proposals by Congress have suggested tying the Fed's monetary policy decisions to a mathematical formula.
In her testimony, Yellen delivered a message that reflected essentially what the Fed said in its most recent policy statement on February 1: The economy and job markets have strengthened, and inflation is edging up, closer to the Fed's 2 percent target.
A yearly checkup on leading Wall Street banks helps regulators protect the US financial system and the reviews should be preserved, the Federal Reserve chair said on Tuesday. The act was widely seen as an effort to repeal the curbs put in place after the financial crisis by the Dodd-Frank Act. Yellen has said investments in research and development and job training would be most effective in bolstering labor productivity, which has been weak, to juice long-term economic growth.