Yellen aware of savers’ frustration; however does not wish to hike rate at aggressive pace

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Nov 24, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Mumbai) - Federal Reserve Chair Janet Yellen on Monday defended the Federal Reserve’s accommodative policy and said rates will be raised as and when there is progress is made towards achieving labor market and inflation goals. In response to consumer advocate Ralph Nader’s open letter, Yellen said that the rock bottom rate, though must have frustrated savers, was needed to boost growth post the recession.

    Yellen defends low rates in her response to Nader

    Nader had written an open letter mentioning the frustration of the savers who were getting near zero interest on their bank and money-market savings accounts. The Fed has kept a key interest rate at a record low near zero since December 2007. "Think about the elderly among us who need to supplement their Social Security checks every month.” Nader had written. He also asked Yellen to consult her Nobel-prize winning husband George Akerlof and consider the prospect that "tens of millions of Americans, with more interest income, could stimulate the economy by spending toward the necessities of life."

    Yellen responded by saying that policy makers were "very well aware" of the frustration of the savers. However she added that the only way ahead to address the problem was to ensure faster growth of the economy.

    Defending the decision to keep rates at record low Yellen said the low rates had made large consumer purchases more affordable, boosting demand in the process. This encouraged business to invest which over time led to the creation of more jobs. The economy was thus put back on recovery path.

    Yellen reiterated pace of rate cuts to remain gradual

    The central bank has for some now expressed its intention to move rates. Yellen once again emphasized that that subsequent rate hikes will be gradual. Yellen has said that by raising rates too quickly the Fed does not want to repeat the mistakes by other countries. Yellen said that an aggressive rate cut will hurt the economic expansion, “necessitating a lasting return to low interest rates”.

    She presented the example of Japan where interest rates have remained near zero for most of the past 25 years as a She said this example should "serves as a cautionary tale” for the U.S.

    Several economists are of the opinion that the Fed will move to raise rates by a quarter-point at its next meeting on Dec. 15-16. However, they mentioned that the Fed will move if economic data between now and December shows further improvements in the job market.
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