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US Fed close to goal; 2017 low inflation a ‘mystery’ – Yellen

US Fed close to goal; 2017 low inflation a ‘mystery’ – Yellen
“You have to keep an open mind" - Janet Yellen

Mubasher: Current Federal Reserve chair Janet Yellen has said that the US central Bank was “reasonably close” to its goals and will likely continue raising interest rates in the coming period.

The interest rate hikes are meant to “avoid the dual pitfalls of letting inflation drift below target for too long, and of driving unemployment down too far,” CNBC reported, citing Janet Yellen as saying late Tuesday.

The Fed is looking to avoid a "boom and bust" economy, the top official added, highlighting that she does not believe that inflation forecasts have fallen “too much.”

Over the past five years, US inflation has remained below the Fed’s 2% target, despite recent hikes in interest rates.

On another note however, the incumbent Fed chair commented that the fact that US inflation for 2017 remained low was “a mystery”.

Yellen “could not say that the Fed clearly understood the causes [of the low inflation for 2017], the Financial Times reported.

Speaking at New York University on Tuesday, Yellen went into detail about inflation, saying that “undershooting from 2014 to 2016 could be easily explained by lingering high unemployment that left slack in the labour market, falling oil prices and the sharp appreciation in the dollar,” the FT added.

“For each year inflation was lower than we wanted it to be but it wasn’t surprising. This year it’s surprising,” Yellen stated.

Yellen’s statements come a day after she announced her retirement from the central bank, effective February 2018 when Jerome Powell takes over the Federal Reserve.

Over the course of 2017, the US witnessed a decline in unemployment, reaching 4.1% in October from a month earlier, against analysts’ forecasts that it would remain stable at 4.2%.

The US economy added 261,000 jobs in October versus projections of 310,000 jobs.

Also in 2017, oil prices and the dollar index were relatively stable.

The Fed’s “working hypothesis is that there are a whole range of idiosyncratic factors, most of which may be temporary”, Yellen said, indicating that a slower rise in healthcare costs compared to forecasts as well as cell phone providers’ introduction of unlimited data plans, had both appeared in the Fed’s official statistics “as a sharp decline in prices.”

“We would expect it to move up [in inflation] next year,” Yellen noted, stressing that “there may be something endemic here that we need to pay attention to”.

“You have to keep an open mind and not assume you have a monopoly of truth,” the Fed chair concluded.

Janet Yellen was the first woman to chair the US central bank.