Gradual pace of interest rate increases prudent, Fed´s Yellen says
Letting the US economy run "too hot" would be risky and unwise, the head of the country´s central bank said, while reiterating her support for a gradual removal of the then current lax policy settings.
Speaking at the Stanford Institute for Economic Policy Research, the chair of the US Federal Reserve also emphasised the "considerable uncertainty" which existed surrounding the best path for the Fed´s policies.
To take note of, Janet Yellen said it was "unlikely" that overheating "could rapidly emerge" as a result of a tighter jobs market.
"I consider it prudent to adjust the stance of monetary policy gradually over time -- a strategy that should improve the prospects that the economy will achieve sustainable growth with the labor market operating at full employment and inflation running at about 2%," Janet Yellen said.
A fair amount of her speech focused on the uncertainties surrounding the path of the so-called neutral Fed funds rate, which Yellen explained played an important role in determining the appropriate policy path, describing it as "highly uncertain".
Among the key factors determining that path were the rate of growth in productivity, the strength of global growth and potential changes in fiscal policy.
"I would mention the potential for changes in fiscal policy to affect the economic outlook and the appropriate policy path. At this point, however, the size, timing, and composition of such changes remain uncertain," she said.
Nevertheless, fiscal policy was just one of the factors which would depende on many different ones, Yellen stressed.
Major swings in the value of the US dollar were could also present a headwind to inflation rising to the Fed´s target, the chair said.