Below are excerpts from the testimony before Congress of Federal Reserve Chair Janet Yellen. Yellen testifies before the House Wednesday morning and again before a Senate committee Thursday afternoon.
Specifically, the FOMC anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term. While the Committee has not decided on the timing of the initial increase in the target range for the federal funds rate, according to the June Summary of Economic Projections (SEP), 15 of the 17 policymakers anticipated that conditions may warrant a first increase in the federal funds rate target sometime this year. (The June SEP is included as Part 3 of this report.)
The Committee has reiterated that, when it decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. Even after the initial increase in the target federal funds rate, the Committee’s policy is likely to remain highly accommodative in order to support continued progress toward its objectives of maximum employment and 2 percent inflation.
In addition, the Committee continues to anticipate that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run. As pointed out by Chair Yellen in her recent press conferences, FOMC participants provide a number of explanations for this view, with many citing the residual effects of the financial crisis.6 These effects are expected to ease gradually, but they are seen as likely to continue to constrain spending and credit availability for some time
. . . . and stressed that its policy decisions will be data dependent
In her recent speeches and press conferences, Chair Yellen emphasized that, while the return of the federal funds rate to a more normal level is likely to be gradual, forecasts of the appropriate path of the federal funds rate are conditional on individual projections for economic output, inflation, and other factors, and the Committee’s actual policy decisions over time will be data dependent. The FOMC does not intend to embark on any predetermined course of tightening following an initial decision to raise the federal funds rate target range. Accordingly, if the expansion proves to be more vigorous than currently anticipated and inflation moves higher than expected, then the appropriate path would likely follow a higher and steeper trajectory; conversely, if conditions were to prove weaker, then the appropriate trajectory would be lower and less steep.
Photo credit: International Monetary Fund via Flickr