Yellen says she thinks Fed should raise interest rates ‘a bit more’

Bloomberg News

Former Fed Chairwoman Janet Yellen said Tuesday the Federal Reserve should stick to the task of raising interest rates to slow down the economy despite the market turmoil seen this month.

“I think it’s appropriate for the Fed to be raising interest rates a bit more,” Yellen said during a talk at the Charles Schwab Impact 2018 conference in Washington.

Yellen said financial conditions remain “accommodative,” or easy, despite the market correction.

The Fed has been stimulating the economy since 2009 and now wants to take its foot off the accelerator to keep the expansion going, and keep inflation contained, she said.

“I think that is a very tricky business,” she said, and it could end in recession.

Yellen said the fed funds rate around 3% would be neutral, neither boosting nor dampening growth. In September, the Fed raised this benchmark rate to a range between 2% and 2.25%.

Yellen said she expected the economy to slow next year but only slightly, and remain above the “trend” rate that would keep lowering the unemployment rate.

Yellen said she wasn’t worried about an outbreak of inflation at the moment, forecasting an inflation rate at 2.1% or 2.2%.

“I don’t think [inflation] will move up a lot. It seems like a pretty benign inflationary process,” she said.

The Fed could be the possible cause of a recession if it tightens too much. This was more a concern for 2020 than 2019, she said.

“It doesn’t have to be a deep recession,” Yellen said.

Asked for her personal impression of President Donald Trump, Yellen said she had met him twice and both times they had had “reasonable” conversations.

“It is clear he is concerned with growth,” she said.

Yellen said the Fed “should keep calm and carry on” despite the critical tweetstorms by the president.