Since Donald Trump’s inauguration, the economy has seemed surprisingly strong. The stock market has surged to record highs behind Trump’s plans for tax reforms and corporate stimulus packages. But on Tuesday, Federal Reserve chairwoman Janet Yellen testified before Congress as to whether we should be worried or not.
What Does the Fed’s Janet Yellen Think About the Direction in Which our Economy is Headed?
In December,the Federal Reserve raises interest rates for just the second time in a decade as a show of confidence in the American economy. And although the Fed chose not to raise rates again in their meeting earlier this month, Fed Chair Janet Yellen reiterated the committee’s confidence in the economy. Ms. Yellen echoed that same sentiment Tuesday in front of Congress, leading experts to expect multiple rate hikes in 2017.
The Federal Funds Rate, which dictates the interest applied to financial loans such as mortgages, car payments, and student loan payments, stayed unchanged to support the labor market and help increase inflation more most of a decade, with one hike in 2015 and one more at the end of 2016. This year was expected to see multiple hikes, which is why many were surprised as the Fed left the rate unchanged.
According to Yellen, the committee recognized the progress the economy had made. She stated that monetary policy remains accommodative and supportive towards labor and inflation. The Fed holds a concern about raising rates too quickly in fear of disrupting financial markets and causing a recession. However, upcoming meetings will reevaluate these factors, with another hike of 0.25% expected in June, with one more coming in December.
One interesting twist is that Yellen pointed out banks have been lending plenty since the Dodd-Frank act went into effect in 2010 following the financial crisis of 2008. This directly conflicted with President Donald Trump’s statements that bank lending is in trouble thanks to Obama’s regulation, and its repeal would free banks to start lending again, helping aid the economy.
Yellen says the country should focus on the long term health of the economy., and warned against the dangers of too much federal debt. Yellen testified that is fiscal policy makers focus too much on short term stimulus, the Fed will have to raise rates more quickly to offset the negative effects of such policy.
Watch this video from Financial Times regarding Janet Yellen’s latest testimony:
For now, the economy looks to be on track, with all signs pointing to rising interest rates in the coming months.
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Featured image via Wall Street Journal