While Janet Yellen is optimistic about the US economy, she outlined some risks Wednesday that could lurk ahead.
For one, the Federal Reserve would like to avoid a scenario in which the labor market improves too much under low interest rate policy, the Fed chair said. That would cause the Fed to raise rates more quickly than it would otherwise like to, potentially derailing the economy.
“The prospect that we could create some downside risk in the labor market is something we’d like to avoid,” Yellen told reporters following the Federal Open Market Committee’s two-day policy meeting.
She also cited risks from not seeing inflation move toward the Fed’s 2-percent target. Yellen and the Fed’s policymaking committee cited inflation as one of the reasons why it did not hike rates at its September meeting.
The Fed’s policymaking committee kept the federal funds rate unchanged at 0.25 to 0.5 percent, though three of the 10 voters supported a quarter-point hike.
The Fed’s statement indicated it could support a hike this year, saying “the case for an increase in the federal funds rate has strengthened,” but that it would wait for more progress toward its objectives.
The policymaking committee’s statement highlighted “solid” job gains but added that inflation still runs below its 2 percent target.