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Business

Yellen flags 'uncertainty' over US fiscal policy

US Fed chair Janet Yellen considers changes in fiscal policy under the Trump administration as factors adding "uncertainty" to the US economic outlook, as she played down expectations for a March interest rate rise.

Testifying before Congress on Tuesday, Yellen highlighted accelerating growth, higher inflation and a robust labor market in the United States, warning at the same time that the Trump administration's spending plans should be consistent with putting the budget on a "sustainable trajectory."

"Considerable uncertainty attends the economic outlook," she said in prepared remarks, pointing to Donald Trump's plans for tax cuts and infrastructure spending which are expected to lead to more rapid economic growth.

The fear is that pumping money into an economy near full employment will ignite inflation, unless the policies are geared towards improving productive capacity, for example through improved infrastructure such as roads, ports and airports.

While she stressed that she would not weigh in on specific tax or spending proposals, she repeated "the importance of improving the pace of longer-run economic growth and raising American living standards with policies aimed at improving productivity."

In her testimony, Yellen also said that the US central bank would decide at its upcoming monetary policy meetings - due to be held on March 14 and 15 - whether to raise the key interest rate once inflation rises closer to the Fed's two percent target and as employment continues to strengthen.

"I can't tell you which meeting it would be... whether it's March or May or June," she told Congress.

 

Rate issues

Her comments on monetary policy gave few additional hints on the timing of the Fed's next rate increase and how many of them were planned for 2017, as she repeated familiar statements that "monetary policy is not on a preset course."

The US Fed's policy-setting Federal Open Market Committee (FOMC) raised rates in December for only the second time in a decade, but kept rates steady in January.

Recent economic data from the US suggest that the labor market continues to improve and inflation is moving up to two percent.

Job gains averaged 190,000 a month in the second half of 2016, for a total of 16 million jobs created since the worst point of the crisis in February 2010. Improvements are being seen throughout all groups, including African Americans and Hispanics, although unemployment among minorities remains significantly higher than the national average.

In addition, the personal consumption expenditures index - the Fed's closely watched inflation measure - rose to 1.6 percent in December, still low but heading in the right direction.

Therefore, Yellen noted - as she's done before - that waiting too long to raise rates "would be unwise" as it might force the central bank to increase them more quickly later.

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uhe/sri (AFP, reuters, dpa)

 

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