With monetary policy still modestly accommodative, the U.S. central bank should continue to raise interest rates slowly or risk harm to the recovery the Fed has sought to nurture, Federal Reserve Chair Janet Yellen said.
Janet Yellen described the move as “a reflection of the confidence we have in the progress that the economy has made and our judgment that progress will continue”.
While there are no signs as yet that the Fed is behind the curve or the economy is in danger of a sudden surge in inflation, she said, “I consider it prudent to adjust the stance of monetary policy gradually over time.”
The downward pressure that the Fed’s $4.5 trillion balance sheet has been exerting on rates for the last several years is declining, she said, making it all the more important to raise rates only gradually.
The Fed last month raised its short-term interest-rate target for only the second time in a decade, but signaled it would likely speed up the pace of rate hikes this year. Rates are currently targeted at between 0.5% and 0.75%.
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