WASHINGTON – Feb. 15, 2017 – Federal Reserve Chair Janet Yellen told Congress on Tuesday that an interest rate hike in March remains on the table, pushing back against market expectations that the Fed will stand pat.

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“Precisely when we take an action – March, May or June – I can’t tell you,” Yellen told the Senate Banking Committee. “I would say every meeting is live.”

Fed fund futures say there’s just an 18 percent chance of a rate increase in March vs. about 50 percent in June. The Fed raised its benchmark rate by a quarter percentage point in December to a range of 0.5 percent to 0.75 percent. That was its first hike in a year.

In December, Fed policymakers forecast three rate increases in 2017, up from its estimate of two bumps in September, citing an improving economy and labor market.

San Francisco Fed President John Williams recently suggested a March increase is a possibility. And Chicago Fed Chief Charles Evans, typically a “dove” who prefers to keep rates low to spur growth, said he officially predicted two rate hikes but could be comfortable with three moves.

Yellen also reiterated that Fed policymakers continue to expect gradual rate increases amid a moderately expanding economy and inflation that should slowly rise to the Fed’s annual 2 percent target.

Fed policymakers generally have not factored President Trump’s fiscal stimulus proposals into their economic growth and rate forecasts. Trump has proposed up to $1 trillion to upgrade the nation’s crumbling roads, bridges and waterways, higher defense spending and big tax cuts.

“It looks like (the Fed’s policymaking committee) believes they’re unlikely to happen or thinks they’re not particularly pro-growth,” Sen. Pat Toomey, R-Pa., told Yellen. “The rest of the world has a different view.”

“Most of my colleagues decided they would not speculate on what economic policy changes would be put into effect and what their effect would be,” Yellen responded. She added: “While it is not my intention to opine on specific tax or spending proposals, I would point to the importance of improving the pace of longer-run economic growth and raising American living standards with policies aimed at improving productivity,” Yellen added.

Yellen said investments in research and development and job training would be effective in bolstering weak labor productivity to juice long-term economic growth, though she said infrastructure investment also could help.

She also said she hopes that Trump’s proposed stimulus will not run up the federal debt. “I would also hope that fiscal policy changes will be consistent with putting U.S. fiscal accounts on a sustainable trajectory,” Yellen told the Senate banking committee. Higher debt is likely to push up long-term rates, increasing borrowing costs for consumers and businesses.

Separately, lawmakers pressed Yellen on when the Fed plans to reduce its roughly $4 trillion balance sheet. During and after the Great Recession and financial crisis, the Fed purchased more than $3 trillion in mortgage-backed securities and Treasury bonds to push down mortgage rates and long-term interest rates broadly.

Some Fed policymakers recently have said the central bank should begin to unwind those purchases now that it has started raising its benchmark short-term rate. Although Fed officials don’t plan to sell the assets because that might abruptly drive up long-term rates, they’ve said they eventually will stop reinvesting the funds from the securities as they mature, allowing the balance sheet to gradually shrink.

http://www.floridarealtors.org/NewsAndEvents  Copyright © 2017, USATODAY.com, USA TODAY, Paul Davidson

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