Fed's Yellen Says March Rate Rise Shouldn't Have Been a Surprise

The FedThe Wall Street Journal

Federal Reserve Chairwoman Janet Yellen said Wednesday financial markets shouldn't have been caught off guard by the interest rate rise the central bank just delivered.

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Ms. Yellen was speaking at a press conference following a gathering of the rate-setting Federal Open Market Committee. It delivered an increase in the central bank's overnight target rate range to 0.75% to 1% and signaled more rate rises are coming, although it offered few hints when that might happen.

Until fairly recently, financial markets had put decidedly low odds on the Fed acting at this gathering and had instead looked to the Fed's June policy meeting as the most likely time to boost rates, following on from December's increase in borrowing costs. But Fed officials, in what many viewed as an unexpectedly hawkish rhetorical surge, drove markets to price in the Fed's March rate rises with a slew of public comments starting with remarks from the San Francisco and New York Fed presidents on Feb. 28.

Ms. Yellen and her top lieutenant, Stanley Fischer built on those views in comments on March 3, with Mr. Fischer saying "if there has been a conscious effort" to boost expectations of a rate rise, "I'm about to join it."

"When I look at our sequence of communications, they seem to me to have been reasonably consistent over this entire period," Ms. Yellen said at the press conference. She said Fed meeting minutes and other communications all added up toward a push toward higher rates, so it became incumbent on officials to weigh in as the March meeting got closer.

"As we saw the data continued to come in in line with our expectations, my colleagues and I spoke out" that a rate rise was coming. Ms. Yellen acknowledged that markets may have underestimated the Fed's appetite to raise rates in part because officials had expected to boost borrowing costs four times in 2016 but only did it once as unexpected economic developments got in the way of acting, she said.

"it is important for the public to understand that we are getting closer to reaching our objectives" and because of that, Fed rate policy is going to be moving higher, Ms. Yellen said.

The Fed chair said "even after this increase, monetary policy remains accommodative, thus supporting some further strengthening in the job market, and a sustained return to 2% inflation."

Moving rates up now also reduced the risk of falling behind the curve, she said, explaining the rate rise Wednesday "reflects our view that waiting too long to scale back some accommodation could potentially require us to raise rates rapidly, sometime down the road, which in turn could risk disrupting financial markets and pushing the economy into recession," Ms. Yellen said.

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