The increase in interest rates by the Federal Reserve is one of the economic events that will affect the entire world. In the past 10 years, the Fed has increased the rate just twice. Fed has announced some time back that the interest rates will be increased thrice this year. During the start of the year, the Fed was unsure of Trump’s economic policies and the Chair wanted to wait before increasing the interest rates. Now, the Fed is in a hurry to introduce a rate hike in March as proposed earlier.
The market was expecting that the Fed Chair Janet Yellen will give a more definitive plan on rate hikes. True to the expectation, the Chair commented that a rate hike in the mid-March is more appropriate considering the current economic situation. The central bank is all set to increase the interest rate. Her speech is made even more interesting as she pointed out the more rate hikes will be introduced than what it was actually planned.
Janet Yellen gave a speech to The Executives Club in Chicago. She suggested that the central bank is moving at a slower pace, hesitating to increase the rates when the economy needs it the most. Yellen commented that it is imperative to cut down the support now because increasing the interest rates rapidly in the future could disrupt the economy and even push it into recession.
The Federal Reserve will meet on 14-15th of March to discuss the economic policies. Yellen’s speech clearly indicated that the meeting will result in the Fed increasing the interest rate which is appropriate for the economy. The rate hike will not only help the economy to proceed on the current track but also provide a boost necessary to propel it forward. During her speech, she noted that this will not be the last hike for this year. Investors hope that there will be at least one interest rate hike which keeps them optimistic.
The term Jenet Yellen uses to describe the monetary policy is closely watched by the experts. During her speech on Jan 19th, she called the monetary policy modestly accommodative which indicated that Fed will slow down on increasing interest rates. However, in her current speech, she called it moderately accommodative which means that the economy is proceeding in the direction the Fed wants it t.
There is a subtle difference in the way the Fed speech was delivered on Friday. It increased the optimistic views of the investors because multiple rate hikes in this year will help the economy to advance further. The Fed is prepared to work with the economic plans of the POTUS and introduce rate hikes at the appropriate time. The Payrolls are also increasing and Fed hopes that it will be sustainable.
While answering the questions, Yellen commented that the decision made by the Fed is not influenced by the expansionary fiscal policy. Market experts hope that the new move by the Fed will result in a liberal budget policy as the economic risks show a decline.