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Yellen Repeats Prepared Testimony, Expects Eventual Rate Hikes

(Kitco News) -Federal Reserve Chair Janet Yellen reiterated her prepared remarks in the second leg of her semiannual congressional testimony Wednesday, saying that interest rates are likely to eventually rise.

The Fed chief was addressing the House Financial Services Committee in the second leg of her semiannual testimony on the economy and monetary policy. On Tuesday, she appeared before the Senate Banking Committee.

A number of analysts suggested her remarks Tuesday were more hawkish than in the past.

Comex April gold fell after her remarks Tuesday, before later recovering. The metal also came under modest pressure after higher-than-forecast U.S. economic data Wednesday morning, although it is once again staging a comeback, up $2.10 to $1,227.50 an ounce as of 10:15 a.m. EST.

Yellen spoke Wednesday morning after markets received several strong U.S. economic reports, including a 0.4% rise in January retail sales, a 0.6% increase in the January consumer price index, and a jump to18.7 in February from 6.5 the prior month in the New York Federal Reserve’s Empire State manufacturing survey.

Yellen said in prepared text that any new fiscal policy changes from the new administration of U.S. President Donald Trump could alter the course of U.S. monetary policy. However, she said it's too early to make determinations on what will occur on that front.

Yellen also said that while the Fed's monetary policy remains "accommodative," she expects the Fed to raise interest rates at some point, saying waiting too long to tighten U.S. monetary policy would be unwise.

“At its meeting that concluded early this month, the (Federal Open Market) Committee left the target range for the federal funds rate unchanged but reiterated that it expects the evolution of the economy to warrant further gradual increases in the federal funds rate to achieve and maintain its employment and inflation objectives,” Yellen said. “As I noted on previous occasions, 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. Incoming data suggest that labor market conditions continue to strengthen and inflation is moving up to 2%, consistent with the Committee's expectations.”

The Fed chair also said in her prepared text that the U.S. economy is growing at a moderate pace, and she expects the global economies to also pick up steam over time. She also said the recent strong U.S. dollar and weakened global economic growth have restrained manufacturing output during the past two years.

By Allen Sykora of Kitco News;



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