Federal reserve chair Janet Yellen puts March hike in play

Federal Reserve Chair Janet Yellen waits to deliver semiannual monetary policy testimony during a House Financial Services Committee hearing on Capitol Hill in Washington, Feb. 15, 2017. This Janet Yellen of the Fed. She reiterated some of the language from the Fed’s last policy meeting that adopted a more hawkish outlook, while indicating that she is concerned about the possibility of holding off rate hike for too long.

Yellen did not say if Fed policymakers expected the USA economy would warrant three interest rate increases this year, as they last signaled in December last year. “The latter is not unlike our concern in the Philippines-we are watching out for the final form of the tax reform that will be approved by Congress”, Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. told reporters in a text message on Wednesday.

Besides, she gave an upbeat assessment of the economy, saying that the economy has continued to make progress toward the maximum employment and price stability objectives. And by the time the president names her replacement, he may already have made four or five appointments to the Fed’s board of governors. The consumer price index rose by a seasonally adjusted 0.6% in January, double expectations. The Fed chair will nearly surely be asked how she intends to respond.

Paul Ashworth, chief USA economist at Capital Economics, noted that Congress’ deadlock over revamping or axing Obamacare showed that “fiscal stimulus could now be delayed for some time”.

Republicans, meanwhile, prodded Yellen to acknoweldge that cutting taxes and regulations could boost an economy that is growing, but only slowly.

Thomson Reuters data shows traders see a 17.7 per cent chance of a 25-basis-point hike in rates at the Fed’s March meeting. “I would also hope that fiscal policy changes will be consistent with putting United States fiscal accounts on a sustainable trajectory”, she said.

Yellen will also likely be grilled on what she thinks about the Trump administration’s economic and fiscal policies.

Balance sheet plans: Several FOMC members have called publicly for a discussion on when, how and the extent the central bank should reduce the size of its US$4.5 trillion balance sheet.

But lawmakers are sure to press her also to spell out how the Fed might react to the ambitious economic program President Donald Trump is preparing to unveil soon.

Democrats argued that bank loans have actually been rising and that repealing the Dodd-Frank law could bring back the unsafe practices that led to the 2008 financial crisis. He could reveal some of his thinking on those issues through his opening statement or his questions for Yellen. She reiterated that falling behind on inflation could harm the economy and possibly cut short the expansion. The open seats – and especially the vice chair of bank supervision post – will enable Trump to quickly transform the Fed in keeping with his ideas on deregulation (though the Senate could slow the process during confirmation).