14 April, AtoZForex, Lagos – Federal Reserve chair Janet Yellen has in recent times been unapologetically dovish in her stance. Again, this was displayed in a recent interview with Time magazine, when Yellen reiterated that the Fed is not likely to make a sudden switch to aggressive policies or anything similar. Considering, the current lingering uncertainty in the global economic conditions, which shows clearly that the FED will be dovish.
From the interview with Time magazine, Janet Yellen stated that: “We necessarily operate in an environment in which there’s a great deal of uncertainty.” During the interview, she covered everything from the Chinese financial market to the future of European integration, commenting further that: “In such an environment, it makes sense to use a risk-management approach to identify and avoid the big mistakes. That’s one reason I favor a cautious approach.”
Four rate hikes vs two rate hikes
At the start of 2016, the markets were expecting four rate hikes, as depicted by the Fed dot plot in December. However, the new year commenced with a China led global economic slowdown, which led the a cautious Fed on raising rates further this year, after the Fed’s historic rate hike back in December. The policy makers now expect only two rate hikes this year, as opposed to the previous prediction. Nevertheless, the Federal Reserve chair has made it clear that the US central bank remains committed to support the domestic economy, amid the gloomy global economic conditions:
“We are focused on Main Street, on supporting economic conditions — plentiful jobs and stable prices — that help all Americans,” the Fed chair told Time.
See also: Obama Yellen meeting
Even though the Fed has been frequently criticized for opting to maintain low rates in this environment, the policy makers have stood firm on their ground. The critics argue that according to many metrics the US recovery is improving, pointing out that easy monetary policies have been known to encourage risky financial behaviors. Similar to the kind which led to the global financial crisis of 2008.
For Yellen, it is all about “risk management”, which means doing everything she can to keep the U.S. recovery on track, especially employment. Especially, this is a very clear reason why the Fed is maintaining low rates for now as the FED will be dovish at least in the near term.
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