The Latest: Yellen stays quiet on wanting 2nd term
WASHINGTON (AP) — The Latest on the Federal Reserve’s monetary policy meeting (all times local):
Federal Reserve Chair Janet Yellen is staying mum about whether she wants a second term as the head of the U.S. central bank.
Yellen says she intends to serve out her four-year term. That term ends Feb. 3, 2018.
Yellen declined to say at a news conference whether she would like to serve a second term. She met several months ago with President Donald Trump, who spoke favorably of her afterward.
But Yellen says she hasn’t spoken since with Trump. Presidential economic adviser Gary Cohn, a prior favorite for Fed chair, appears to be on the outs with the president after criticizing the administration’s response to violence from white supremacists in August in Charlottesville, Virginia.
The clock is ticking on Trump to pick a Fed chair and provide a continuity in leadership. Yellen was nominated in October 2013 for the post, which requires Senate confirmation.
The Federal Reserve has been dogged in recent years by inflation below its 2 percent target, but Fed Chair Janet Yellen says she still thinks this trend appears to be temporary.
Yellen says that inflation has been below target since 2013 for a variety of factors. This includes a job market still healing from the Great Recession, lower energy prices and a strong dollar that reduced the costs of imports.
The Fed views a modest level of inflation as helping to propel consumer spending and business investment. But its stimulus efforts that have kept rates near historic lows since 2008 have failed to boost inflation.
Yellen told reporters at a news conference that she would adjust Fed policy if she thought the causes of low inflation were permanent.
Federal Reserve Chair Janet Yellen says the “severe disruptions” from Hurricanes Harvey, Irma and Maria will briefly hold down economic growth.
Yellen says she expects growth to rebound as the rebuilding process takes hold.
But her remarks at a news conference Wednesday suggest that the Fed anticipates that economic growth could be somewhat tepid relative to the expectations before the storms made landfall.
The Federal Reserve says it expects the economy will grow this year at a slightly faster pace than it projected in June. It has also trimmed its inflation forecast.
The Fed says in its latest quarterly economic projections that economic growth should reach 2.4 percent this year, up from a June forecast of 2.2 percent.
The central bank also expects inflation will remain stubbornly low. The Fed now projects it will be 1.9 percent by the end of 2018, a touch below its earlier forecast of 2 percent. That would mean inflation would fall short of the Fed’s 2 percent target for the sixth straight year.
Some Fed officials have questioned whether the central bank should continue raising rates, which it typically does to forestall inflation, at a time when price growth remains so low.
Federal Reserve policymakers say they still expect to hike short-term interest rates one more time this year and three times in 2018, if persistently low inflation rebounds.
They also have lowered their long-run forecast for the benchmark interest rate the Fed controls to 2.8 percent, down from 3 percent in a previous forecast in June. That suggests they expect growth to remain sluggish and inflation low, and therefore don’t need to raise rates as high to keep prices in check.
Fed officials say they also foresee a slightly slower path for rate hikes in 2019. They now expect there will likely be two hikes, down from three.
The Fed says it will start in October to gradually unwind its $4.5 trillion balance sheet, which expanded to unprecedented levels in efforts to spur economic growth after the 2008 financial crisis.
The balance sheet primarily consists of government and mortgage-backed bonds. As the bonds mature, the Fed plans to spend less money each month to replace them, which reduces the balance sheet. The U.S. central bank intends to spend $10 billion less on bonds beginning next month, a figure that will eventually reach $50 billion a month in October 2018.
Fed officials decided to keep their short-term benchmark rate between 1 percent and 1.25 percent. The Fed views the job market as strengthening, but it notes that inflation is running below its 2 percent annual target.
Still, the Fed said in a statement that prices for gasoline and other items might temporarily spike because of the damage caused by Hurricanes Harvey, Irma and Maria.
Investors are eagerly expecting the Federal Reserve to announce the first steps toward unwinding its $4.5 trillion balance sheet.
The Fed built up its portfolio of government and mortgage-backed bonds in response to the Great Recession — an effort to keep borrowing costs low to help spur more economic activity and protect home prices that had been cratering after the housing bubble burst a decade ago.
Fed Chair Janet Yellen and other officials are also likely to keep a benchmark short-term rate at the low range of 1 percent to 1.25 percent. The caution in raising rates comes as inflation has consistently stayed below the Fed target of 2 percent.
Markets anticipated the balance sheet unwinding and have been quiet so far on Wednesday. The Standard & Poor’s 500 index of stocks has risen just 0.08 percent ahead of the Fed announcement at 2 p.m. Eastern. The Dow Jones industrial average had edged up a mere 0.1 percent.
Financial markets are largely subdued as investors remain cautious ahead of the Federal Reserve’s announcement of its monetary policy meeting.
At the end of its two-day meeting on Wednesday, the Federal Reserve is widely expected to announce it will begin to reduce its enormous bond portfolio, which reached $4.5 trillion. The move will gradually increase long-term borrowing rates.
While the decision to shrink the Fed’s balance sheet is much expected, when and how the Fed will manipulate its target for short-term interest rates is less clear. After leaving its benchmark rate at a record low for seven years after the 2008 crisis, the Fed has modestly raised the rate four times since December 2015 to a still-low range of 1 percent to 1.25 percent.
Asian stock indexes were little changed, with Japan’s Nikkei up 0.1 percent, while in Europe Germany’s Dax was 0.2 percent higher. Futures for the Dow and S&P 500 were both flat.
The dollar was also trading in narrow ranges, edging down to 111.50 yen from 111.58 yen the day before.