WASHINGTON — Federal Reserve Chair Janet L. Yellen said Wednesday that the country’s economic expansion has widened and deepened, and she expects growth to continue.
Ms. Yellen’s upbeat assessment, delivered to the Joint Economic Committee, should bolster expectations that the Fed will raise its benchmark interest rate in mid-December. It could also sharpen questions about Republican plans for a major tax cut aimed at spurring faster growth.
“Economic growth appears to have accelerated from its subdued pace at the start of the year,” she told the congressional committee. “Furthermore, economic expansion is increasingly broad based across all sectors as well as much of the global economy.”
Ms Yellen was careful to say that the economy could do better. She noted that the pace of economic growth remained slow by historical standards. The two main determinants of growth, the number of workers and the productivity of the average worker, are increasing slowly.
“Congress could consider policies that encourage business investment and capital formation, improve the nation’s infrastructure, increase the quality of our education system, and support innovation and the adoption of new technologies,” said Congress. she declared.
In response to questions from members of both political parties, however, she declined to assess whether the Republican tax plan would achieve that goal. She said it was up to Congress and the White House to assess the details of the proposed changes.
“Looking at the likely impact of particular proposals that might be under consideration is something that we haven’t done carefully at the Federal Reserve,” Ms. Yellen said.
She also said changes in fiscal policy could affect how quickly the Fed raises rates.
Fed officials have drawn a careful distinction between tax cuts that increase economic capacity – for example, by encouraging business investment – and tax cuts that provide high sugar in the short term, such as personal income tax cuts that would likely increase spending.
The Fed estimates that the economy is already growing at a rate close to the maximum sustainable rate. Therefore, a short-term stimulus would likely increase inflation. In turn, the Fed could seek to compensate for faster inflation by raising interest rates faster.
“We welcome strong growth,” Ms. Yellen said. “The Fed is not trying to stifle growth. We are concerned about trends that could push inflation above our 2% target.
Ms Yellen also touched on questions about financial regulation, largely echoing Mr Powell’s testimony during his confirmation hearing on Tuesday.
Like Mr. Powell, Ms. Yellen has championed tougher regulation of big banks. She said it would be “very dangerous” to reverse the rigors introduced after the 2008 crisis.
She also reiterated Mr. Powell’s view that the Fed supported legislation that would ease the regulatory burden on smaller banks. She even borrowed a phrase from Mr. Powell, endorsing the idea of adapting the regulations to the size of the bank.
Ms. Yellen’s assessment of economic conditions was perhaps the most optimistic of her four years as Fed chair, reflecting the improvement in economic conditions during her tenure. The unemployment rate fell to 4.1%, while inflation remains below 2%.
The Commerce Department said Wednesday that the US economy grew at an annual rate of 3.3% in the third quarter, higher than its previous estimate of 3%.
Ms Yellen noted that the economy shrugged off hurricane disruption this fall. She said the Fed’s policy-making group, the Federal Open Market Committee, planned to keep raising the benchmark interest rate, ending its own efforts to spur faster growth.
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“With labor market conditions continuing to strengthen and the outlook for inflation to return to 2% over the next two years, the FOMC continued to gradually reduce accommodative policy,” Ms. Yellen said. “We continue to expect gradual increases in the federal funds rate to be appropriate to maintain a healthy labor market and stabilize inflation.”
Inflation remains below the Fed’s 2% annual target. Indeed, this will likely be the sixth year in a row that the Fed has failed to meet this target. But Ms Yellen said she expected inflation to rise as the labor market continued to tighten. She noted that businesspeople are now uniformly telling the Fed that they are struggling to find enough skilled workers. This suggests that companies are under pressure to offer high wages, which drives up prices.
Committee members took the opportunity to congratulate Ms. Yellen. Democrats were particularly enthusiastic in applauding his performance at the Fed.
“I would say your term has been an unqualified success by any measure,” said Rep. Carolyn Maloney, Democrat of New York.
She described Ms Yellen as “one of the most successful Fed chairs in history”.