Yellen's Departure - A New Era in US Monetary Policy?

Andrew Cummings
February 3, 2018

Policy makers said they would continue to "carefully monitor" inflation as the Fed tries to meet its 2% target - the level it considers healthy for the USA economy.

Under Yellen's successor, Jerome Powell, the federal funds rate is expected to drift higher during the remainder of 2018.

Joshua Roberts/Reuters Jerome Powell testifies before the Senate Banking, Housing and Urban Affairs Committee on his nomination to become chairman of the U.S. Federal Reserve in Washington, U.S., November 28, 2017.

In its statement Wednesday, the Fed said Powell would be sworn in on Monday.

Fed policymakers have been encouraged in recent months as the economy picked up speed and the unemployment rate fell to a 17-year low of 4.1 per cent.

Kathy Bostjancic, chief market economist at Oxford Economics in NY, said the Fed could have addressed the tax cuts.

Gold prices edged higher on Wednesday, as investors looked ahead to the Federal Reserve's policy meeting, the last under the leadership of Janet Yellen. These projections will depend on the continuing acceleration in inflation, which remains the top targets of Fed', despite the strong labor market.

Yellen became the first Fed chair in modern history not to be reappointed to a second term, despite a strong four-year track record and leadership during the financial crisis, when she proved prescient of numerous problems the economy was facing.

"Gains in employment, household spending and business fixed investment have been solid, and the unemployment rate has stayed low", the Federal Open Market Committee (FOMC) said. The March policy meeting will also be the first time that Powell is scheduled to hold a news conference, something the leader of the Fed does four times a year.

A spike in global bond yields, with 10-year USA bond yields pushing well above 2.70 percent, their highest since April 2014, prompted some investors to cut some short positions and pushed the dollar higher on Monday. Markets are giving the Fed the green light to raise rates.

"The Fed's acknowledgment of the quickening pace of inflation today put three hikes in 2018 into the "base-case" and perhaps raises the prospects for a fourth", said Mike Terwilliger, portfolio manager, Resource Credit Income Fund.

Fed officials said they expect inflation to inch up higher this year as it seeks to meet its target. Nellie Liang, a longtime official in the Fed's Office of Financial Stability Policy and Research, also joined Brookings past year after retiring from the central bank.

While yields fell overnight, benchmark USA 10-year yields, which move inversely to prices, touched their highest in almost four years later on Tuesday, and 30-year yields climbed to their highest since May 2017.

At Brookings, Yellen will join her immediate predecessor, Ben Bernanke, and former Fed Vice Chair Don Kohn. It is not a solicitation to make any exchange in commodities, securities or other financial instruments.

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