Delay In Interest Rate Hike Is Risky for US Economy: Yellen
Jul, 17th 03:19
Federal Reserve Chair Janet Yellen told lawmakers that waiting too long to raise interest rates holds risks for the U.S. economy, along with tightening too quickly.
“There are risks on both sides,” she told the Senate Banking Committee on Thursday in her second day of congressional testimony. “My own preference would be to proceed in a prudent and gradual manner.”
Premature tightening could threaten the recovery, she said. “That’s a consideration that has been weighing on our decision-making for quite some time and has led us in part to hold interest rates at these very low levels for as long as we have,” she said.
At the same, waiting too long could cause the Fed to “overshoot” its goals for full employment and low and stable inflation, forcing it to “tighten monetary policy in a very sharp way that could be disruptive.”
Holding rates near zero has another disadvantage, Yellen said: It leaves the central bank little room to respond to an unexpected blow to the economy.
“If there is a negative shock to the economy with interest rates pinned at zero we don’t have great scope to respond by loosening policy further, whereas with a positive shock of course we can tighten monetary policy,” she said.