Yellen warns Congress against overheating USA economy

Yellen warns Congress against overheating USA economy

Yellen's comments indicated she sees the time to start to shrink the balance sheet "as far off", said Michael Gapen, chief USA economist at Barclays, said in a research note. She added, "The economic outlook is uncertain, and monetary policy is not on a preset course".

Testifying before Congress on Tuesday, Yellen highlighted accelerating growth, higher inflation and a robust labor market in the United States, warning at the same time that the Trump administration's spending plans should be consistent with putting the budget on a "sustainable trajectory".

Interestingly, Yellen made a clear rebuttal of the notion of tying monetary policy to a "rule" per se, noting the US economy would be "much weaker" if central bank had followed Taylor Rule (which would call for rates of 3.5%-4%).

Now if Yellen had been trying to prepare investors for a possible March rate hike by the Fed, her message backfired badly.

Waiting too long before raising rates would be unwise as it could require disruptive rate increases that push the economy into recession.

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Officials are afraid the death toll might rise as the injured people are being treated in hospitals around Taiwan's capital city. Local authorities are now investigating whether the bus was speeding or worn out driving at the time, according to reports .

In her semiannual report to the Senate Banking Committee, Yellen said that the USA labor market continues to strengthen, but she urged the government to focus on improving the long-run productivity of the economy.

"The world listens to what Yellen has to say and her speech does have a potential to create an interesting reality check".

The Fed raised rates in December for the second time in about a year, increasing its target by 25 basis points to a range of 0.5% to 0.75%.

She said: "The pace of wage growth has picked up relative to its pace of a few years ago, a further indication that the job market is tightening".

Yellen said that if, as the Fed expects, the jobs market continues to improve and inflation continues to rise, an increase in the benchmark federal-funds rate would probably be appropriate "at our upcoming meetings".

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Yellen promised nothing but the market thought she might be a bit more cautious in order to avoid building up hike hopes.

Over the weekend Fed Vice Chair Stanley Fischer said there was significant uncertainty about United States fiscal policy under the Trump administration, but that the Fed would be strict in meeting targets of creating full employment and getting inflation to 2 percent, according to Reuters.

Inflation is the Fed's enemy and policies that set off a spending spree in the economy risk pushing the central bank to raise interest rates faster. That's about double the average growth rate of C&I loans since the FDIC first began collecting the data back in the mid-1980s. This was before the Senate Banking Committee, and some might interpret her words as a tad more hawkish or less dovish than in prior statements. Yellen has been a staunch defender of the law.

But based on her comments on Tuesday, Yellen and Trump officials are likely to disagree about precisely what to do next. With a Republican in the White House, those efforts now stand a greater chance of success. 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.

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