Yellen: Fed will move 'cautiously'

The Federal Reserve is in no rush to hike interest rates, as global risks could impact the so-far resilient American economy, according to Federal Reserve Chairwoman Janet YellenJanet Louise YellenOn The Money: Trump may impose 0B in China tariffs as soon as next week | Trump nixes federal worker pay raise | Biz groups push for deal with Canada | Trump threatens to leave WTO Trump says he doesn't regret picking Powell to lead Fed Senate confirms Columbia University professor to be Fed vice chairman MORE.

The Fed chief argued Tuesday that while the Fed has predicted it could raise rates gradually in the coming months, markets should not consider those hikes an inevitability. Rather, Yellen said the central bank would be monitoring economic threats, particularly those from abroad, in weighing its next steps.

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“Given the risks to the outlook, I consider it appropriate for the Committee to proceed cautiously in adjusting policy,” she said in New York City.

Yellen identified two major economic threats to watch, ones that could force the Fed to slow its return to normal rates: the global economic slowdown and the significant decline in energy prices. For the time being, Yellen said those two challenges do not appear to be slowing the U.S. economy significantly, as the nation has continued to post steady job gains in recent months and has seen little sign of a significant slowdown.

Those factors, which encouraged large swings in financial markets in the first few months of 2016, do not appear to be hitting home in the U.S. economy, according to Yellen. Rather, for now, the Fed still believes the economy will continue to slowly improve and inflation will gradually rise to more normal levels.

But she also added that the Fed is going to watch those challenges closely and is fully prepared to adjust course if necessary.

“I anticipate that the overall fallout for the U.S. economy from global market developments since the start of the year will most likely be limited, although this assessment is subject to considerable uncertainty,” she said.

Yellen’s remarks came at a time when the Fed has held off on any further rate hikes after it raised rates for the first time in nearly a decade in December. Her comments emphasized the risks that could delay further Fed action rather than the danger in waiting. And Yellen also explained why the Fed should not rush to raise rates prematurely, arguing that acting too quickly could limit its ability to boost the economy if things turn worse.