Maloney questions Yellen on interest rates
WASHINGTON – Congresswoman Carolyn B. Maloney (D-NY) today questioned Federal Reserve Chairwoman Janet Yellen on monetary policy. A transcript of the exchange follows:
Chair Yellen you raised interest rates in December and said that any future interest rate increases if they happened would be gradual. I’d like to ask you about the recent turmoil in global markets. As you know equity markets around the world led by China have plunged since the beginning of the year as global economic growth has weekend. And the US has not been immune. US stock markets have fallen over 9% since the beginning of the year and treasury yields have plunged 23%. So my question is has the turmoil in global markets changed your view about the appropriate pace of interest rate increases and hikes or will you wait to see how the global market turmoil effects the US economy before raising rates again.
We are watching very carefully what’s happening in global markets. It appears that stresses we’ve seen since the turn of the year relate to uncertainties regarding Chinese exchange rate policy. There are uncertainties around the price of oil. We’ve not seen shifts that seem significant enough to have driven the sharp moves we’ve seen. In markets there would seem to be increased fears of recession risk that is resulting in rising in risk premium. We’ve not yet seen a sharp drop off in growth either globally or in the United States, but we certainly recognize that global market developments bear close watching. As I mentioned the financial conditions have become less supportive to growth and we recognize that these development s may have implications for the outlook which we are in the process of assessing and I want to make clear that monetary policy is not on a preset course and so our evaluation of the likely impact of those developments on the economic outlook and our ability to meet both our employment and inflation objectives are the factors that will govern the future stance of monetary policy.
Given the turmoil in global markets and the slowing us economy some analysts are talking about the US possible falling into a recession this year. What would it take for you to consider cutting interest rates again? A severe downturn in the economy, or just stubbornly low inflation?
Well our commitment is to achieve our congressionally mandated goals of maximum employment and price stability. I do not expect that the FOMC is going to be soon in a situation where it’s necessary to cut rates. Let’s remember that the labor market is continuing to perform well and improve. I continue to think that many of the factors holding down inflation are transitory. While there is always risk of recession I recognize and have just stated that global financial developments could produce a slowing in the economy. I think we want to be careful not to jump to a premature conclusion about what is in store for the US economy. I don’t think it will be necessary to cut rates, but as I said monetary policy is not on a preset course and if it turned out that that would be necessary obviously the FOMC would do what is needed to achieve the goals Congress has assigned us.
You said in December that you were surprised by how far oil prices had fallen and you expected inflation to increase once oil prices stabilized. Since the feds December meeting oil prices have fallen even further. They’re down about 25 percent since the December meeting and they’ve fallen 7 percent since Friday. At the same time we’ve also seen inflation expectations fall since the December meeting to the lowest levels in quite some time. Has this caused you to rethink your inflation projections at all?
We indicated in our statement in January that these developments led us to conclude that inflation will stay low for a while longer as these developments work through. Clearly we are watching inflation expectations and as I mentioned market based measures of inflation compensation have moved down now to historically low levels and that is something we’re evaluating carefully. In December when we raised rates we indicated that with inflation so far below our objective we would carefully watch incoming data and revise our expectations. I don’t want to jump to a premature conclusion. My colleagues and I will issue in March updated projections for inflation taking all the evidence we have at hand into account.