On June 14, policymakers said they aim to reduce that balance sheet, by reinvesting payments from those securities only above certain caps, totaling $10 billion.
The cap would escalate in three month intervals. It would start implementing those policies this year, assuming economic growth continues.
Janet Yellen said she’s not sure how far the committee will want to reduce the holdings over the long run, but she said they would be levels “appreciably below” those seen in recent years though larger than before the financial crisis.
The Fed raised interest rates for the first time since the crisis in December 2015.
Policymakers acted in December 2016 and again in March.
The June 14 decision was made with an 8-1 vote, with Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, dissenting. Neel Kashkari also voted against the March rise.
Interest rates remain low by historic standards. The board expects to raise rates at least three times this year.
The moves depend on the strength of the economy, which has been mixed.
On June 14, the US Labor Department reported that prices for goods excluding food and energy increased by 1.7% from May 2016, slowing steadily from earlier in the year.
That fell short of the Fed’s target of 2%.
Janet Yellen said the bank is aware of the shortfall and it was “essential” to move back to the target.
However, she said this year’s data may be skewed by one-off factors, such as lower prices on cell phone plans.
“It’s important not to overreact to a few readings,” she said.
“Data on inflation can be noisy.”
For US consumers, interest rate increases tend to lead to increased borrowing costs.
The Fed has decided to raise its benchmark interest rate by 0.25%, from 0.5% to 0.75%, citing a stronger economic growth and rising employment.
This is only the second interest rate increase in a decade.
The central bank said it expected the economy to need only “gradual” increases in the short term.
Fed chief Janet Yellen said the economic outlook was “highly uncertain” and the rise was only a “modest shift”.
However, the new administration could mean rates having to rise at a faster pace next year, Janet Yellen signaled at a news conference after the announcement.
President-elect Donald Trump has promised policies to boost growth through tax cuts, spending and deregulation.
Janet Yellen said it was wrong to speculate on Donald Trump’s economic strategy without more details.
She added that some members of the Federal Open Markets Committee (FOMC), the body which sets rates, have factored in to their forecasts an increase in spending.
As a consequence, the FOMC said it now expects three rate rises in 2017 rather than the two that were predicted in September.
Janet Yellen told the news conference: “We are operating under a cloud of uncertainty… All the FOMC participants recognize that there is considerable uncertainty about how economic policy may change and what effect they may have on the economy.”
Also, the Fed chairwoman declined to be drawn on Donald Trump’s public comments about the central bank, and his use of tweets to announce policy and criticize companies.
“I’m a strong believer in the independence of the Fed,” Janet Yellen told journalists.
“I am not going to offer the incoming president advice.”
The interest rate move had been widely expected, and followed the last increase in 2015.
Rates have been near zero since the global financial crisis. But the US economy is recovering, underlined by recent data on consumer confidence, jobs, house prices and growth in manufacturing and services.
Janet Yellen said the rate rise “should certainly be understood as a reflection of the confidence we have in the progress that the economy has made and our judgment that that progress will continue”.
Although inflation is still below the Fed’s 2% target, it expects the rise in prices to pick up gradually over the medium term.
The Fed also published its economic forecasts for the next three years.
These suggest that the Federal Funds rate may rise to 1.4% in 2017; 2.1% in 2018; and 2.9% in 2019.
GDP growth will rise to 2.1% in 2017 and stay there, more or less, during those years.
The unemployment rate will fall to 4.5% over the 2017-2019 period, the Fed forecast.
Inflation will rise to 1.9% next year and hover at that level for the next two years.
The dollar rose 0.5% against the euro to €0.9455, and was 0.9% higher against the yen at 116.17 yen.
Following the Fed’s announcement, Wall Street’s main stock markets were largely unmoved, but drifted lower later. The Dows Jones index closed down 0.6%, and the S&P 500 was 0.8% lower.
The head of the Federal Reserve, Janet Yellen, has warned financial conditions in the US had become “less supportive” of growth.
The Fed released Janet Yellen’s prepared comments ahead of her latest appearance before Congress.
The central bank raised interest rates by 0.25% for the first time in nine years in December 2015.
In the prepared testimony, Janet Yellen said: “Financial conditions in the United States have recently become less supportive of growth, with declines in broad measures of equity prices, higher borrowing rates for riskier borrowers and a further appreciation of the dollar.
“Against this backdrop, the [Federal Reserve] Committee expects that with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace in coming years and that labor market indicators will continue to strengthen.”
Janet Yellen added China’s “unclear” currency policy was fuelling global stock market volatility.
She said the decline in China’s currency, the yuan, had “intensified uncertainty about China’s exchange rate policy and the prospects for its economy”.
“This uncertainty led to increased volatility in global financial markets and, against the background of persistent weakness abroad, exacerbated concerns about the outlook for global growth.”
While Janet Yellen said she was confident China’s economy was not facing a “hard landing”, the Fed chief said the overall uncertainty created by the world’s second-largest economy was behind some of the steep falls in global commodity prices, which in turn were creating stress for exporting nations.
Janet Yellen added that “low commodity prices could trigger financial stresses in commodity-exporting economies” as well as in commodity-producing firms around the world.
If such problems materialized, she added, “foreign activity and demand for US exports could weaken and financial market conditions could tighten further”.
Following her prepared testimony Janet Yellen responded to questions in Congress about the new way in which the central bank implemented its last rate rise.
Congress is concerned the new policy benefits the country’s banks more than the American public, because banks receive a higher interest rate on the reserves they hold at the Fed.
Supporters of the interest rate on excess reserves (IOER) policy say it allows the Fed to maintain control of the market.
Janet Yellen has called the policy a “traditional tool” for adjusting rates, citing its use by other central banks around the globe. The Fed was given the power to offer IOER by Congress in 2006.
US stock markets opened higher after the comments.
Recent stock market turmoil has prompted most Wall Street analysts to push back their forecast of when the next US Federal Reserve interest rate rise will occur, from March to June at the earliest.
US stock markets have taken a battering in recent weeks over concerns caused by the economic slowdown in China, which has in turn led to lower commodity and oil prices, while the weaker yuan has made Chinese exports cheaper than those from the US.
The Dow Jones is down some 8.5% since the start of the year, the S&P 500 is down more than 9% since January 1 and the NASDAQ is lower by 14%.
US economic growth in the last three months of 2015 also slowed dramatically, to 0.7% compared with the same period a year earlier, falling from 2% three months earlier.
The Federal Reserve has announced it is raising interest rates by 0.25 percentage points.
This is the US rate’s first increase since 2006.
The move takes the range of rates banks offer to lend to each other overnight – the Federal Funds rate – to between 0.25% and 0.5%.
The move is likely to cause ripples around the world, and could increase pressure on the UK to raise rates.
It could also mean higher borrowing costs for developing economies, many of which are already seeing slow growth.
There are concerns that a rise will compound that slowdown, as higher rates in the US could strengthen the dollar, the currency in which many countries and companies borrow.
It puts US policy at odds with that in Europe, where even easier borrowing terms are being implemented.
The European Central Bank (ECB) earlier this month cut overnight deposit rates from minus 0.2% to minus 0.3% and extended a €60 billion stimulus program.
The US rate rise vote was unanimous.
The Fed also raised its projection for its economic growth next year slightly, from 2.3% to 2.4%.
That suggests the bank does not think the rate increase will damage growth. US share markets jumped in response.
The Dow Jones went from a 50-point rise to stand up 79 points at 17,612.79 – a 0.5% gain.
Rates in the US have been at near-zero since 2008.
The Fed cited as the reasons for its action increased household spending and investment by business, along with a continued low rate of inflation.
In its statement, the committee said: “The committee judges that there has been considerable improvements in labor market conditions this year, and it is reasonably confident that inflation will rise, over the medium term, to its 2% objective.”
The Fed has said it will continue to monitor inflation and employment to determine if and when further rise are justified.
The Federal Reserve chairwoman, Janet Yellen, said the committee was confident the economy would “continue to strengthen” but it still has “room for improvement”.
Future action will depend on how the economy moves forward and will be gradual.
Janet Yellen acknowledged weakness remained in the labor market, particularly wage growth.
She warned that if the Fed had continued to delay a rate rise, it could have been forced to tighten monetary policy too quickly, something that could have led to another recession.
The Fed’s medium-term projection for the Federal Funds rate is 1.5% in 2016 and 2.5% in 2017.
The bank will not get close to normal levels of around 3.5% until 2018 when it expects the economy will be back on a solid track.
“Were the economy to disappoint, the Federal Funds rate would likely rise more slowly,” said Janet Yellen.
Janet Yellen gave little clues as to the timing of the next move, saying: “I’m not going to give you a simple formula for what we need to raise rates again.”
According to revised official figures, the US economy expanded more than previously estimated in Q2 2015.
The US Commerce Department said the economy expanded at an annualized pace of 3.9%, rather than 3.7%.
The overall US economic growth was due to strong consumer spending, business investment and residential construction.
Photo Getty Images
It rate is much higher than the 0.6% rate recorded in Q1 2015.
The growth rate is expected to have slowed in the current quarter, but in a speech on September 24 Federal Reserve head Janet Yellen said economic growth appeared “solid” and the US remained “on track” for an interest rate rise this year.
Janet Yellen said as long as inflation was stable and the US economy was strong enough to boost jobs, the conditions would be right for a rise.
US interest rates have been held at near-zero since the 2008 financial crisis. When they finally do rise, it will be the first interest rate increase in nine years.
Stocks on Wall Street made a bright start in the wake of the GDP figures and Janet Yellen’s comments, with the Dow Jones rising 1% in morning trade.
Janet Yellen has been confirmed by US Senate as the next head of the Federal Reserve.
Fifty-six senators voted in favor of Janet Yellen with 26 opposed – many members of the chamber were unable to attend the vote because of bad weather.
It was the last procedural hurdle for Janet Yellen, 67, before taking over from outgoing chair Ben Bernanke on February 1st.
Janet Yellen is the first woman to lead the central bank in its 100-year history.
President Barack Obama welcomed the vote, saying in a statement: “The American people will have a fierce champion who understands that the ultimate goal of economic and financial policymaking is to improve the lives, jobs and standard of living of American workers and their families.”
Originally from Brooklyn, New York, Janet Yellen served as chair of former President Bill Clinton’s Council of Economic Advisers and was an economics professor at the University of California, Berkeley.
Janet Yellen has been confirmed by US Senate as the next head of the Federal Reserve
During the Senate session to confirm her as the head of the central bank, many senators praised her long-term focus on unemployment.
Janet Yellen is the first Fed chair nominated by a Democratic president since Paul Volcker left the top spot in 1987.
She will face a difficult road ahead once Ben Bernanke steps down after eight years in office.
Although most analysts expect Janet Yellen to continue Ben Bernanke’s efforts to boost the US economy by keeping short term interest rates low, she will eventually face unchartered territory once the central bank begins to ease back on its extraordinary measures.
Janet Yellen was a strong supporter of the Fed’s current stimulus efforts – a $75 billion a month bond buying program known as quantitative easing. By buying bonds, particularly mortgage bonds, the Fed has tried to keep long term interest rates low to spur housing activity and encourage investors to spend, rather than save, their money.
In doing so, the Fed has amassed close to $4 trillion in assets since it first initiated its stimulus efforts in the wake of the 2008-2009 financial collapse – a fact that some senators criticized during Monday’s confirmation hearings.
Although the central bank announced plans to cut its purchases from $85 billion a month to $75 billion a month in December, Janet Yellen faces the difficult task of assessing when and how to ease stimulus efforts.