It was chair Janet Yellen’s final meeting at the Fed as Jerome Powell, who was nominated as the new Federal Reserve by President Donald Trump, is already confirmed by the US Senate.
In a break from past practice, Trump opted not to nominate Yellen to a second four-year term. Instead, he chose fellow Republican Powell to head the US central bank.
The Fed, which raised rates three times last year and in December forecast three more hikes for 2018, expects “further gradual” rate increases will be warranted.
Analysts say the target range for the federal funds rate is 1.25 to 1.5%.
Inflation has picked up slightly since the middle of 2017 while remaining short of the central bank’s 2% goal. The Fed’s preferred price gauge, a Commerce Department index linked to consumer spending, rose 1.7% in the 12 months through December. Excluding volatile food and energy costs, inflation was 1.5%.
Powell is expected to hew closely to the policies embraced by Yellen, who spearheaded the gradual move away from the near-zero interest rates adopted to nurse the economy back to health and spur job growth after the 2007-2009 recession, a Reuters’ dispatch showed.
Fed officials are hoping to keep a tight labour market from overheating without raising borrowing costs so fast that it would stifle the economy.
With a gradual pace of rate increases, policymakers want to nudge inflation back up to their 2% target, a goal they have mostly missed for more than five years. Even with a brightening outlook for global growth and Fed tightening, financial conditions continue to ease.
During Yellen’s four years at the helm, US unemployment has fallen to 4.1%, the lowest since 2000, as she navigated the Fed away from its crisis-era emergency policies and inched interest rates away from zero.
Yellen seems to have used low inflation to maintain low interest rates that helped pull millions of more Americans back into jobs, and the Fed under her leadership began to pay more attention to labour-market inequality.
Notwithstanding this week’s rout in the US stock market, investors have prospered during Yellen’s time atop the central bank, figures show. Since she took control in February 2014, the Dow Jones Industrial Average has risen by more than 65%, data show.
As Fed chair, Yellen began the process of exiting from the extraordinary measures that the Fed put in place during the financial crisis and its aftermath, gingerly lifting interest rates from near 0% and slowly scaling back the central bank’s big holdings of bonds.
She said gains in the labour market had begun to benefit “almost all groups in the American economy” and she expected the pace of wage growth to move up, but perhaps not dramatically.
Yellen will soon be joining a Washington-based think tank to continue her economic studies and particularly her analysis of the labour market.
