Coverage: Yellen is bullish on the economy

Janet L. Yellen, chairwoman of the Federal Reserve Board, said on Sunday that the American economy was in good health in an upbeat assessment that reinforced expectations the Fed is planning to raise its benchmark interest rate later this year.

Binyamin Appelbaum of The New York Times had the news:

Job growth is strong, companies are increasing investment, and the United States is benefiting from the improved health of the global economy, Ms. Yellen said in remarks to the Group of 30, which hosts gatherings of international policy makers and private-sector bankers.

Referring to the Fed’s benchmark rate, Ms. Yellen said, “We continue to expect that the ongoing strength of the economy will warrant gradual increases in that rate to sustain a healthy labor market and stabilize inflation around our 2 percent longer-run objective.”

The Fed has raised its benchmark interest rate twice this year, in March and in June, to a range between 1 percent and 1.25 percent. Investors expect a third 0.25 percentage point increase at the Fed’s final policy-making meeting of the year, in mid-December.

The Fed also announced in September that it would begin to reduce its holdings of Treasuries and mortgage bonds. The Fed kept rates at a low level and bought the bonds to reduce borrowing costs, stimulating economic activity. It is pulling back from that stimulus campaign because officials think the economy can stand on its own.

Jeanna Smialek of Bloomberg News said Yellen called inflation the “biggest surprise” of the economy:

“My best guess is that these soft readings will not persist, and with the ongoing strengthening of labor markets, I expect inflation to move higher next year,” Yellen said Sunday at the Group of Thirty’s Annual International Banking Seminar in Washington.

Yellen’s term expires in February and she is said to be among the candidates President Donald Trump is considering to be his pick to lead the central bank. She has presided over a sustained recovery from the global financial crisis, though inflation has remained below the Fed’s 2 percent goal, a development that’s puzzled policy makers at a time when the unemployment rate has fallen past its pre-crisis low.

“The biggest surprise in the U.S. economy this year has been inflation,” Yellen said on a panel that included Bank of Japan Governor Haruhiko Kuroda, People’s Bank of China Governor Zhou Xiaochuan and European Central Bank Vice President Vitor Constancio.

While the Fed chair said she expects a pickup, she and her colleagues “recognize that this year’s low inflation could reflect something more persistent than is reflected in our baseline projections.”

Julia Manchester of The Hill reported Yellen said the hurricanes had a “noticeable” impact on the economy:

“While the effects of the hurricanes on the U.S. economy are quite noticeable in the short term, history suggests that the longer-term effects will be modest and that aggregate economic activity will recover quickly,” Yellen said at the Group of 30 International Banking Seminar in Washington, D.C., referring to Hurricanes Harvey, Irma and Maria.

The chair went on to say that the storms had noticeable impacts on growth and unemployment, although she was largely optimistic about the economy.

“In September, payrolls were reported to have declined 33,000, but that weakness reflected the effects of Hurricane Irma, which hit Florida during the reference week for the September labor market surveys,” she said, adding that she expects employment to rise as communities recover and people get back to their jobs.

“The hurricanes will likely result in some hit to GDP growth in the third quarter but a rebound thereafter, and smoothing through those movements, I’m expecting growth that continues to exceed potential in the second half of the year,” she continued.