Fed’s Yellen sees more US rate hikes ahead

Federal Reserve Chair Janet Yellen said more interest-rate increases will be appropriate if the US economy meets the central bank’s outlook of gradually rising inflation and tightening labour markets.

“At our upcoming meetings, the committee will evaluate whether employment and inflation are continuing to evolve in line with these expectations, in which case a further adjustment of the federal funds rate would likely be appropriate,” she told the Senate Banking Committee in prepared remarks on Tuesday.

Yellen’s semi-annual report on monetary policy is her first since Donald Trump became president vowing to boost US growth, which could push the Federal Open Market Committee to pick up the pace of rate hikes if such steps fan higher inflation. She reiterated that falling behind on inflation could harm the economy and possibly cut short the expansion.

“Waiting too long to remove accommodation would be unwise, potentially requiring the FOMC to eventually raise rates rapidly, which could risk disrupting financial markets and pushing the economy into recession,” she added.

The Fed, which has only raised rates twice since the recovery began in 2009, has pencilled in three quarter-point rate increases in 2017, as the economy closes in on the central bank’s goals for maximum employment and 2 per cent inflation.