Janet L. Yellen, chairwoman of the Federal Reserve, said Tuesday in her remarks to the Economic Club of New York that it is appropriate for U.S. central bankers to proceed with caution in adjusting policy. Major U.S. market indexes turned positive on Tuesday after the release of Yellen's remarks.
According to Yellen, U.S. economic keeps going since problems caused by the weakness of the global economy had been offset by an easing of domestic financial conditions. Yet the economic and financial conditions are in some respects less favorable now than in December, and the global economy also presents heightened risks. Thus the gradual increases in the federal funds rate are especially warranted in coming years because the FOMC’s ability to use “conventional monetary policy to respond to economic disturbances is asymmetric” if the federal funds rate is so low. Yellen added that the Fed can hike if the economy grows faster. But if the economy falters, the Fed can "provide only a modest degree of additional stimulus".
Ms. Yellen pronounced a cautious note on inflations as well. Although inflation rate rose 1.7 percent in past 12 months ended in January, Yellen said it is still "too early to tell if this recent faster pace will prove durable. "The inflation outlook has also become somewhat more uncertain since the turn of the year, in part for reasons related to risks to the outlook for economic growth," she said. "To the extent that recent financial market turbulence signals an increased chance of a further slowing of growth abroad, oil prices could resume falling, and the dollar could start rising again."