Yellen suggests a continuation of gradual rate hikes

WASHINGTON (AP) — Federal Reserve Chair Janet Yellen said Wednesday that the Fed expects to continue raising interest rates gradually. And she sought to assure lawmakers that the Fed would take care not to choke off any extra growth generated by tax cuts as long as inflation stayed tame.

In likely her last appearance before Congress before she leaves the Fed in February, Yellen received praise and appreciation from Republicans and Democrats on the Joint Economic Committee who saluted her four-year tenure.

Yellen’s testimony reinforced statements made Tuesday by Jerome Powell at his Senate confirmation hearing to succeed her as Fed chairman. President Donald Trump chose Powell, a Fed board member, to replace Yellen, the first woman to lead the central bank, after saying he wanted to impose his own stamp on the Fed.

Yellen and Powell both stressed this week that the Fed intends to keep moving incrementally to raise rates in response to a consistently solid economy. Powell said at his confirmation hearing that he thought the case for a rate increase when the Fed meets next month was “coming together.” Indeed, most economists expect the Fed to raise rates in December for the third time this year.

In her appearance, Yellen painted a generally upbeat view of the economy, with growth achieving an annual rate above 3 percent for two straight quarters for the first time in three years. On Wednesday, the government estimated that the economy grew at a 3.3 percent annual rate in the July-September period.

President Donald Trump is pushing Congress to pass a tax cut bill this year to give the economy a boost. Republicans on the committee asked Yellen whether the Fed might end up negating any such stimulus effect by accelerating its rate hikes to prevent the economy from overheating.

“We welcome strong growth,” Yellen replied. “The Fed is not trying to stifle growth.”

She said that if economic expansion were to exceed the modest rates that have prevailed in recent years, “we will be delighted to support that. … We do not have some cap on growth that we are trying to achieve.”

But she said that in an economy already operating with unemployment at a 17-year low of 4.1 percent, she hoped any economic acceleration would be accompanied by growth in the workforce or improved worker productivity.

The tax plans in Congress are projected to raise budget deficits by $1.5 trillion over the next decade. Yellen said that the rising government debt was a concern and that proposals to rescind the tax cuts if faster economic growth didn’t materialize were worth considering.

“I am very worried about the sustainability of the U.S. debt trajectory,” Yellen told lawmakers. She said long-term projections by the Congressional Budget Office that take account of rising government benefits as baby boomers retire “should keep people awake at night.”

During her four years as Fed chair, Yellen endured numerous contentious hearings before Congress, with Republicans attacking her policies and complaining that the central bank had grown too powerful and too unaccountable to Congress.