Janet Yellen defends continuing to raise rates despite low inflation

The Federal Reserve has a real headache with inflation. Models do not fit. The lowering of energy, low wages and appreciation of the dollar partly explain the story. Structural factors such as digitization and the globalization of the economy also influence prices. Faced with this uncertainty, its president Janet Yellen believes that the prudent thing is to continue with a strategy of progressive withdrawal of stimuli.


The current course of monetary policy in the United States, according to Yellen, "is appropriate" despite low inflation. The head of the monetary authority doubts that she can reach the 2% reference level that guides her strategy. But although there are elements that escape him in his analysis, he believes that it would be "imprudent" to wait until that target value was reached to raise the rates.

The current level of inflation, Yellen admits in his assessment, "is not desirable." The big challenge for the US central bank is that if prices remain persistently low as they have until now, that forces them to pursue a tighter monetary policy. And although it does not anticipate a major change in inflationary dynamics to change its plan, neither does it close the door to a change.

Neel Kashkari, chairman of the Minneapolis Fed, commented before Janet Yellen that he sees no need to raise rates further while inflation is so weak. "When I look at the economy, I do not see any signs that it is close to overheating," he argues, "I do not see inflation rebounding, so I do not think we have to put our foot in the brake."

Yellen herself says that inflationary behavior is being a "mystery" this year and does not rule out the "misinterpreting" of the data. That's why it treats that "noise" does not affect your strategy. The Fed will begin in a few days to divest itself of the assets of debt that has in portfolio and the majority of the members see possible a new increase of types this 2017.

If produced, it will be the fifth rise since the financial crisis. But the Fed looks for more evidence. The price increase observed in August, Yellen said, was transitory. Annual inflation is at 1.9% but the underlying inflation rate is only 1.4%. It was explained by the rebound in gasoline that followed the impact of Hurricane Harvey on the oil refining industry in the Houston region.