Until How Long?
By Isaac Cohen*
Last week, Federal Reserve Chair Janet Yellen presented mandated testimonies on monetary policy to committees of both the House of Representatives and the Senate.
One of the main highlights of both presentations to the US Congress was the polite but firm refusal by Chair Yellen to declare the exact date when the central bank will start increasing interest rates. Questioned in several ways, particularly by Republican Representatives, Chair Yellen declared that it all depends from the levels of employment and inflation.
Two weeks before, in a speech at the Economic Club of New York, Chair Yellen presented the economic outlook, as perceived by the members of the Federal Reserve Open Market Committee. The projection is that maximum employment with price stability, understood as unemployment between 5.2 and 5.6 percent and inflation between1.7 to 2 percent, will be reached by the end of 2016. Additionally, the central bank recognizes that low real interest rates may be required for some time, after the achievement of the objective.
The answer to the question of how long interest rates will remain low depends from the answer to what Chair Janet Yellen called “three big questions:” Is there significant slack in the labor market? Is inflation moving back toward 2 percent? Finally, what factors may push the recovery off track? In other words, the answer to when? is by the end of 2016, or before if necessary.
*International analyst and consultant. Commentator on economic and financial issues for CNN en Español TV and radio. Former Director, UNECLAC.