The Federal Reserve continues to eye an increase in the Federal Funds Rate this year, but from a distance and with no apparent inclination to hasten that move. Speaking recently at the Providence (RI) Chamber of Commerce, Fed Chairman Janet Yellen restated her position that the agency will adjust rates when economic conditions make an increase “appropriate.” But she made it clear that current conditions don’t yet meet that definition.
While job gains have moved the labor market closer to full strength, she said, “in my judgment we are not there yet.” The unemployment rate is close to what many economists believe to be its natural low point, but Yellen said she doesn’t think the statistics “fully capture the extent of slack” in the labor market, created by the large number of people who are no longer looking for work (and so are no longer counted as part of the work force) because they have given up on the possibility of finding a job.
Yellen said she expects the economy and the labor market will continue to improve this year, making a rate hike before year-end still likely if not assured. But she also emphasized that the Fed has “no intention of embarking on a preset course of increases in the federal funds rate after the initial increase. Rather, we will adjust monetary policy in response to developments in economic activity and inflation as they occur If conditions improve more rapidly than expected” she said, it may be appropriate to raise interest rates more quickly; conversely, the pace of normalization may be slower if conditions turn out to be less favorable.”