It’s “premature” to decide inflation won’t go back to 2% in the coming years, and the Federal Reserve will alter its course if the inflation undershoot is “persistent,” Federal Reserve Board Chair Janet Yellen said Wednesday.

Federal Reserve Board Chair Janet Yellen.
Federal Reserve Board Chair Janet Yellen. Bloomberg News

Responding to a question during testimony before the House Financial Services Committee about how the Fed can raise rates when inflation has been falling, Yellen said, “the prudent course is to make some adjustment” since inflation is expected to go back to 2% in the next few years, noting that there is no set path, so it can change if the inflation expectations don’t pan out.

She again termed the recent inflation decreases as “temporary,” based on “special factors.”

She noted the Fed reaffirmed its commitment to a 2% inflation target in January.

On a separate topic, Yellen was asked if the Federal Open Market Committee considered buying short-term municipal debt. She replied, “not to the best of my knowledge.”

On a separate topic, Yellen was asked if the Federal Open Market Committee considered buying short-term municipal debt. She replied, “not to the best of my knowledge.”

When asked about the Taylor rule, Yellen said, “I don’t believe the FOMC should mechanically follow any policy rule,” but added that members look at Taylor and other rules in determining policy.

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