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Economy

Questions For Fed Chair Yellen

WASHINGTON — Federal Reserve Chair Janet Yellen will deliver the central bank’s mid-year economic outlook this week to Congress, where she will face grilling from House and Senate lawmakers.

Here are five questions Yellen will likely face during her testimony on Wednesday and Thursday.

Q: When will the Fed begin to raise its key interest rate, which has been near zero since December 2008?

In a speech Friday, Yellen reiterated that she believes if the economy improves as she expects, it will be “appropriate at some point later this year to take the first step to raise the federal funds rate.” But she stressed that the course of the economy “remains highly uncertain.” At the moment, the financial markets are betting that the Fed will begin raising rates in September, although some private economists suspect that date will slip.

Q: How do you think the job market is performing?

The Fed has kept rates low for as long as it has in an effort to promote recovery in the labor market, which saw millions of people lose their jobs and unemployment surge to 10 percent during the 2007-2009 recession. For a long time, the improvements were painfully slow. But over the last year, job gains have accelerated. In June, the unemployment rate fell to a seven-year low of 5.3 percent. Yellen has acknowledged the progress, but at the same time points out remaining problems such as weak wage growth. How Yellen describes the health of the job market will offer a key window into her thinking on raising interest rates.

Q: Are you still concerned that inflation is too low?

The Fed has a goal of seeing inflation rise at an annual rate of 2 percent. The Fed has been worried that inflation is running below 2 percent, fearing that an unexpected shock to the economy could send the country into a painful period of deflation with falling prices and wages. The Fed has said it doesn’t want to start raising interest rates until it is “reasonably confident” that inflation is moving back to its 2 percent target. How Yellen describes current inflation trends will be another clue to her views on monetary policy.

Q: How worried are you about developments in Greece and China?

The minutes of the Fed’s June meeting show that officials were concerned about the potential impact of a failure to get an agreement on Greek debt and the economic slowdown in China and emerging markets. Greece is going through a protracted process to achieve a new debt deal, while China’s stock market has plunged over the past month. Yellen will likely be asked whether the economic uncertainty overseas could cause the Fed to delay a rate hike.

Q: Did the Federal Reserve’s actions to combat the financial crisis of 2008 and the Great Recession make the central bank too powerful?

Many Republicans have expressed unhappiness with what they see as a Fed that is too secretive and too unaccountable to Congress and the public. Lawmakers in both the House and Senate have introduced legislation to rein in the Fed’s independence. In addition, Yellen has refused to hand over certain documents subpoenaed by a House committee relating to an investigation of a possible Fed leak of market-sensitive information. She will undoubtedly face pointed questions about accountability from some lawmakers.

MARTIN CRUTSINGER, AP Economics Writer

 

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