Yellen said the rate hike did not reflect a reassessment of the Fed’s economic outlook.
The FOMC raised the benchmark federal funds rate by 25 basis points to a range of 0.75%-1%, marking its third increase since the Great Recession. This will eventually increase borrowing costs for short-term loans and credit cards.
The Federal Open Markets Committee projected two more rate hikes this year, unchanged from its previous estimate of three in 2017, and showing that it still expects a slow tightening pace. Only one member of the FOMC — the Minneapolis Fed’s Neel Kashkari — voted against a rate hike.
“The simple message is the economy is doing well,” Yellen said. “We have confidence in the robustness of the economy and its resilience to shocks.”
As the Fed continues to normalize rates, questions are arising about how it plans to shrink the balance sheet it expanded after the financial crisis. Yellen said the fed funds rate remained the preferred policy tool, and the Fed has not made a decision on its reinvestment policy.
The Fed has not factored in the impact of potential fiscal-policy changes, Yellen said. Higher infrastructure spending and tax cuts could stimulate the economy and inflation faster than the Fed currently anticipates. “We have plenty of time to see what happens,” Yellen said, adding that the Fed was not speculating on what President Donald Trump’s administration would do.
Yellen said she had a brief meeting with Trump, and has met a couple of times with Treasury Secretary Steven Mnuchin.
She addressed the quick surge in market expectations for a rate hike in March, saying that the previous dovishness was likely influenced by the fact that the first two hikes were a year apart.
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