US Congress Threatens Independence of Federal Reserve – Yellen

The Federal Reserve will likely raise interest rates even before inflation hits the central banks 2 percent target, Fed Chair Janet Yellen said Thursday in testimony before the Congressional Joint Economic Committee.

The Federal Open Market Committee will gather for their next meeting on Dec. 15 and 16 and will decide whether to raise interest rates or keep them near zero, where they have been since December 2008.

Gold futures slumped to a almost six-year low on Thursday, undercut as the dollar strengthened on expectations the European Central Bank will expand its stimulus program as the Federal Reserve prepares to deliver a rate hike later this month.

“Those risks are ones that we watch very carefully”, she said.

“On balance that’s led and I think it will continue to lead to growth that is somewhat above trend and on a continuing path of labour market improvement”, Yellen said. Whether that rate hike comes in December or right after the first of the year may be immaterial.

“This legislation… is an approach to monetary policy that severely threatens the independence of the Federal Reserve in making decisions free of short-term political pressures in the best long-term interests of the economy”, Yellen stated. “Ongoing gains in the labor market, coupled with my judgment that longer-term inflation expectations remain reasonably well anchored, serve to bolster my confidence in a return of inflation to 2% as the disinflationary effects of declines in energy and import prices wane”. “In that sense, it is a day that I expect we all are looking forward to”.

“It does have the potential to have a significant economic effect”, she said.

The Fed’s first rate hike, expected to be 25 basis points, will start what is expected to be a slow cycle of policy tightening that may see rates remain below normal for years to come.

The Labor Department’s monthly jobs report on Friday will be a key data point, with economists expecting that as many as 200,000 additional jobs were created in November. “That weak growth shows through the demand for USA exports, and is one factor that has been depressing United States net exports”.

Ms Yellen offered an upbeat assessment of U.S. economic conditions, although she emphasised that the recovery from the recession was incomplete. During the last round of rate hikes, the Fed boosted rates by regular quarter-point moves at 17 meetings from June 2004 to June 2006.