Federal Reserve Chair Janet Yellen delivered her Economic Outlook testimony on Wednesday—which could be her last appearance before Congress before she leaves the Fed in February.
Overall, Yellen said that the U.S. economy has strengthened further this year. Despite adversity caused by the recent natural disasters, noting that job gains averaged about 170,000 per month from January through October—as 17 million more Americans are employed now than eight years ago.
Meanwhile, the unemployment rate, 4.1 percent in October, “has fallen 0.6 percentage point since the turn of the year and is nearly 6 percentage points below its peak in 2010.”
However, even with an increase in economic growth and stronger employment, Yellen addressed that inflation has continued to run below the 2 percent rate goal of the Federal Open Market Committee (FOMC).
“In my view, the recent lower readings on inflation likely reflect transitory factors, Yellen said before the Joint Economic Committee. “As these transitory factors fade, I anticipate that inflation will stabilize around 2 percent over the medium term.”
Yellen discussed changes to the target range for the federal fund rate will continue to be the FOMC's primary means of adjusting the stance of monetary policy, suggesting that the committee should maintain the existing target range for the gradual rate hike.
“We continue to expect that gradual increases in the federal fund's rate will be appropriate to sustain a healthy labor market and stabilize inflation around the FOMC's 2 percent objective,” Yellen said.
Yellen’s potential successor, Jerome Powell discussed interest rates Tuesday morning during his hearing before the U.S. Senate Committee on Banking, Housing, and Urban Affairs.
Powell said, under his leadership, the Fed would at least consider raising interest rates in the near term. “Conditions are supportive of doing that,” said Powell, but he declined to make any specific commitments on the subject.
Further economic outlook was reported through the Fed’s Beige Book, and according to the report’s national summary, economic activity increased at a “modest to moderate pace” across all 12 districts in October and mid-November.
The Fed’s report added residential real estate activity remained constrained, with most districts reporting small growth in sales or construction. Conversely, nonresidential activity was consistent with previous reports of slight growth.
Although price pressures have strengthened, most districts reported “modest to moderate growth in selling prices and moderate increases in non-labor input costs.”
Specifically, construction-material costs increased in most regions, with many districts attributing higher lumber costs in demand for materials due to hurricane rebuilding efforts.