U.S. Federal Reserve Chair Janet Yellen said Tuesday that the central bank planned to raise interest rates cautiously.
"Given the risks to the outlook, I consider it appropriate for the Committee to proceed cautiously in adjusting policy," Yellen said in a speech to the Economic Club of New York.
Her remarks are consistent with the statement the Fed adopted after the March 15-16 meeting. In her view, since the turn of the year the U.S. economy has been somewhat mixed.
On the one hand, many indicators have been quite favorable. The labor market has added an average of almost 230,000 jobs a month over the past three months. In addition, the unemployment rate has edged down further, more people are joining the workforce as the prospects for finding jobs have improved. Consumer spending appears to be expanding at a moderate pace, driven by solid income gains, improved household balance sheets, and the ongoing effects of the increases in wealth and declines in oil prices over the past few years. The housing market continues its gradual recovery, and fiscal policy at all levels of government is now modestly boosting economic activity after exerting a considerable drag in recent years.
On the other hand, manufacturing and net exports have continued to be hard hit by slow global growth and the significant appreciation of the dollar since 2014. These same global developments have also weighed on business investment by limiting firms' expected sales, thereby reducing their demand for capital goods; partly as a result, recent indicators of capital spending and business sentiment have been lackluster.
In addition, business investment has been held down by the collapse in oil prices since late 2014, which is driving an ongoing steep decline in drilling activity. Low oil prices have also resulted in large-scale layoffs in the energy sector and adverse spillovers to output and employment in industries that support energy production.
Yellen believed that the future path of the federal funds rate is necessarily uncertain because economic activity and inflation will likely evolve in unexpected ways.
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