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Yellen says caution on rate hikes is justified and takes negative rates off table

By Greg Robb

Published: Mar 29, 2016 12:20 p.m. ET


Yellen says too early to tell if inflation pick up will last


WASHINGTON (MarketWatch) — Federal Reserve Chairwoman Janet Yellen on Tuesday defended the U.S. central bank’s decision to move cautiously on interest rates hikes given the risky outlook, as she also revealed the toolkit in case the economy stumbles.

“Global developments have increased the risks” to the outlook, with economic and financial conditions still less favorable than in December when the Fed engineered its first rate hike in a decade, Yellen said in a speech to the Economic Club of New York.

“Given the risks to the outlook, I consider it appropriate for the Committee to proceed cautiously in adjusting policy,” she said. She did not mention a month for when the Fed could lift interest rates.

Also see: Live blog of Yellen Q&A with economists

Yellen said the overall fallout from market turmoil in the first seven weeks of 2016 will most likely be limited, but said this was still uncertain.

The Fed chairwoman repeated her doubts that the pickup in core inflation since the beginning of the year was the start of an upward trend.

“It is too early to tell if this recent faster pace will prove durable,” Yellen said.

In an unexpected twist to the speech, Yellen tried to bolster investor confidence that the Fed was not powerless to aid the economy in the event of another recession even though the central bank can’t cut rates very much.

She said the Fed could make promises, or what she calls “forward guidance” on interest rates, and also mentioned the possibility of buying more bonds or exchanging short-term bonds for longer-dated ones.

Yellen made no mention of negative interest rates as a possible response.

http://www.marketwatch.com/story/yellen-says-caution-on-rate-hikes-is-justified-and-takes-negative-rates-off-the-table-2016-03-29