Federal Reserve Chair Janet Yellen cautioned that raising interest rates too quickly risked stranding inflation below the U.S. central bank’s 2 percent target and said there’d been “some hint” that expectations for future price increases may be drifting down.
“It can be quite dangerous to allow inflation to drift down and not to achieve over time a central bank’s inflation target,” she said Tuesday, while also discussing perils of leaving rates too low for too long.
“One reason it’s dangerous is because inflation expectations are likely to also drift down and indeed there is some evidence -- I don’t really think they’ve drifted down very much -- but there’s some suggestion,” they may be drifting down, she said at an event at New York University moderated by former Bank of England Governor Mervyn King. “That would be a very undesirable state of affairs.”
The Fed announced Monday that Yellen, 71, would step down once current Fed Governor Jerome Powell -- who President Donald Trump nominated to replace her when her term expires in February -- is confirmed by the Senate and sworn into office.
Yellen, Powell and the rest of the U.S. central bank’s policy-setting Federal Open Market Committee are attempting to guide interest rates back to what they deem a more neutral level after years of keeping them near zero to combat the effects of the financial crisis.
Source : Bloomberg