The first female to lead the U.S. Federal Reserve has made her last interest rate announcement. Chairwoman Janet Yellen left rates unchanged. The U.S. benchmark short-term interest rate is holding steady in a range between 1.25 per cent and 1.5 per cent.
In a statement released after the announcement, the U.S. Federal Reserve states, “In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 1-1/4 to 1‑1/2 percent. The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation.”
This may have signalled that Yellen is confident there will be more rates hikes in 2018, but of course, she won’t be the one to Chair that decision.
Chairwoman Janet Yellen’s contribution to the Fed
Yellen is receiving high praise from her peers as she leaves the top job after four years. She took the helm in 2014, from her predecessor Ben Bernanke and made her mark as the first woman to lead the U.S. Federal Reserve.
Two years into her tenure and only after reaching full employment in the U.S., Yellen raised rates. That’s when the U.S. Federal Reserve started to shrink its bond holdings – something that was boosted during the financial crisis of 2007 to stimulate the economy.
Yellen leaves the top post after 14 years with the Bank, first as president of the San Francisco Federal Reserve, then as Vice-Chairwoman of the U.S. Federal Reserve, and then as Chairwoman.
It should be noted that Yellen, who at the time was leading the San Francisco Federal Reserve, was a strong supporter of Bernanke’s initiative in 2008 to buy enormous quantities of Treasury and mortgage bonds to try to drive down long-term borrowing rates to support the economy – otherwise known as quantitative easing.
As she exits, unemployment in the U.S. is at a record low, and economists credit that to Yellen’s careful handling of interest rate. When she took office, the unemployment rate was 6.7 per cent, and it now sits at 4.1 per cent. That is a 17-year low.
The future of the Fed
Its widely expected there will be three interest rates hikes in 2018, starting with the next announcement in March by the new U.S. Federal Reserve Chairman Jerome Powell. Inflation remains below the U.S. Federal Reserve’s target of two per cent but the evidence is clear. With solid gains not just in employment, but also household spending and capital investment, every indication leads to the U.S. Federal Reserve raising rates sooner rather than later. The next U.S. Federal Reserve meeting is scheduled to take place on March 20 to March 21, with an interest rate decision expected on March 21.