Yellen: Rate Hikes No Sure Thing

The Federal Reserve will be cautious with interest rates going forward, Fed Chair Janet Yellen told a House committee this morning.

The recovering U.S. economy faces a number of threats, including tighter financial conditions fueled by falling stock prices, uncertainty over China and a global reassessment of credit risk, Yellen said.

“The FOMC anticipates that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate,” said Yellen, reading a prepared statement. “In addition, the committee expects that the federal funds rate is likely to remain, for some time, below the levels that are expected to prevail in the longer run.”

During a testy back-and-forth with Rep. Mick Mulvaney, R-S.C., Yellen said the Fed will not be bound by set benchmarks or guidelines such as the Taylor rule that prescribes rates depending on economic milestones.

“What does the world have to look like in order for the Federal Reserve to start considering transitioning to a rules-based system,” Mulvaney asked.

The Taylor Rule is a monetary-policy rule that stipulates how much the central bank should change the nominal interest rate in response to changes in inflation, output, or other economic conditions.

“I believe and I think most of my colleagues agree that we shouldn’t mechanically follow (the Taylor Rule) or any rule,” Yellen responded.

Rep. Jeb Hensarling, R-Tex., committee chairman, struck a combative tone from the start, telling Yellen that the economy is in a phony recovery that hasn’t materialized for most Americans.

Hensarling blamed “the crushing regulatory onslaught” of Affordable Care Act, Dodd-Frank and the EPA for hamstringing the economy. “The Fed cannot substantially help our economy, it can only hurt it,” the chair added.

“I do feel compelled to demand that the Fed adopt a monetary policy that is predictable, transparent, sustainable and barring terribly exigent circumstances, to stick with it,” Hensarling said.

In December, the Fed raised interest rates for the first time in about seven years, ending a lengthy run of a near-zero rate. At the time, speculation focused on four more hikes this year. That has since been downplayed amid the risks cited by Yellen and continued low inflation.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected].

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InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.