Yellen Says Low Inflation Could Lead to Slower Pace of Rate Rises -- Update
September 26 2017 - 1:21PM
Dow Jones News
By David Harrison
Federal Reserve Chairwoman Janet Yellen on Tuesday defended the
central bank's projection for a gradual path of interest-rate
increases over the next few years even though she said low
inflation, if it persists, could lead to a slightly slower pace of
rate rises.
Ms. Yellen and her colleagues have been grappling with subdued
inflation growth for much of the year despite a growing economy and
vigorous labor market. That has presented officials with a dilemma.
From one point of view, the weak inflation readings could be a sign
that interest rates should remain lower than anticipated. Yet
keeping interest rates low for too long could cause inflation to
grow too rapidly and inflate new financial bubbles.
Inflation, under the Fed's preferred measure, has undershot the
central bank's 2% target for much of the past five years. Although
Ms. Yellen said she expects inflation to gradually move up to the
target, she acknowledged the uncertainty surrounding that
prediction.
"How should policy be formulated in the face of such significant
uncertainties? In my view, it strengthens the case for a gradual
pace of adjustments," Ms. Yellen said in remarks prepared for
delivery at an economic conference in Cleveland. "It would be
imprudent to keep monetary policy on hold until inflation is back
to 2 percent."
Moving too quickly could slow growth unnecessarily, she said.
"But we should be wary of raising rates too gradually," she added.
Moving too slowly could create an inflationary problem down the
road that might be difficult to overcome without triggering a
recession," she said.
Still, the Fed's understanding of inflation is "imperfect," she
said, "and we recognize that something more persistent may be
responsible for the current undershooting."
"We will monitor incoming data closely and stand ready to modify
our views based on what we learn," she said.
(MORE TO COME)
Write to David Harrison at david.harrison@wsj.com
(END) Dow Jones Newswires
September 26, 2017 13:06 ET (17:06 GMT)
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