Per the Wall Street Journal, Federal Reserve Chairwoman Janet Yellen sees enough strength in the economy to continue the process of normalizing interest rates over this year and the next, after finally topping a 2.1% inflation target in February. The Fed chair reports growth, but “at a modest pace.” As such, the policy calls for action seeking a middle ground:
Where before we had our foot pressed down on the gas pedal trying to give the economy all the oomph we possibly could, now [we’re] allowing the economy to kind of coast and remain on an even keel,” she said. “To give it some gas, but not so much that we’re pressing down hard on the accelerator.”
Another interesting note is what may happen to the Fed’s $4.5 trillion portfolio:
Fed officials raised rates in March for only the third time since the financial crisis, to a range between 0.75% and 1%. But they have penciled in two more rate increases this year, followed by three in 2018. They are also considering reducing the Fed’s $4.5 trillion portfolio of cash and securities, acquired during three rounds of asset purchases aimed at lowering long-term borrowing costs after the recession.
It also seems the inflation target is going hold at 2%, which may be much more realistic in the long term, per the chair, “Evidence suggests that the population roughly expects inflation in the vicinity of 2%.”