Cautious Yellen pushes back on Fed officials eyeing hike

U.S. Federal Reserve chair Janet Yellen speaks to the Economic Club of New York in New York 29 March, 2016

Reuters: Federal Reserve Chair Janet Yellen said on Tuesday the U.S. central bank should proceed only cautiously as it looks to raise interest rates, pushing back on a handful of her colleagues who have suggested another move may be just around the corner.

In her first comments since the Fed decided to hold rates steady two weeks ago, Yellen said inflation has not yet proven durable against the backdrop of looming global risks to the U.S economy, including still-low oil prices and concerns over China.

The comments, which boosted stocks and bonds and hit the dollar, come as healthier measures of U.S. inflation and manufacturing have prompted some other Fed officials to say another policy tightening could come as soon as April.

But Yellen was not about to change tack just yet.

“Given the risks to the outlook, I consider it appropriate for the Committee to proceed cautiously in adjusting policy,” she said of the Fed’s policy-making Federal Open Market Committee.

At its March policy meeting, the Fed had nodded to an overseas slowdown and early-year market turmoil in justifying a pause to its policy tightening. At the time, Fed officials also downgraded economic expectations and predicted only about two more rate hikes this year, down from a December prediction of four.

Yellen said she still expected that headwinds from weak growth abroad, low oil prices and uncertainty over China would abate and allow the U.S. recovery to continue alongside a “gradual” series of rate hikes.

But, she added, the overseas developments “imply that meeting our objectives for employment and inflation will likely require a somewhat lower path for (rates) than was anticipated in December,” when the Fed hiked for the first time in a decade.

In response to her comments at the Economic Club of New York, the dollar dropped to a one-week low while equities and gold rebounded.

U.S. inflation measures have shown some recent strength, with the Fed’s preferred annual measure flat at 1.7% in February, though still below its target of 2%. Another closely watched 12-month measure was up 2.3% from a year ago.

That, along with a partial rebound in oil prices and relative tranquillity in global markets, appear to have given some other Fed officials confidence that the economy can soon absorb tighter policy after seven years of near zero rates.