■ Janet Yellen made note of the financial market turmoil, but sought to put it into perspective while highlighting the dynamic job market.
■ The Fed maintains its analysis: growth will remain strong enough to absorb residual underemployment while inflation will gradually return towards the Fed’s 2% target. Global growth trends are the main downside risk to this scenario.
■ The Fed does not seem to have changed its plans. By reiterating that its decisions are data-dependent, Ms. Yellen did not close the door on any options for the March FOMC meeting. So will the Fed raise its key rates or not?
Fed Chair Janet L. Yellen spoke this week before the Congressional financial committees of both houses1. This long-awaited speech was the first time she had spoken since the press conference following December’s rate increase, and since the financial market turmoil of early 2016.
Ms. Yellen’s opening statements did not suggest a paradigm shift: the Fed continues to expect that growth will be strong enough to absorb residual underemployment and that inflation will return towards its 2% target in the medium term. The exceptional factors of low energy prices and the dollar’s appreciation would gradually put less of a strain on inflation trends, which are also likely to get support from the dynamic job market. This has been the Fed’s analysis for several months, and there is nothing new about the downside risks to this “ideal” scenario either. Indeed, global growth trends are the main risk factor.
by Alexandra ESTIOT