Interest rates will rise to "more normal levels" only if it will help the Federal Reserve reach its objectives, 2% inflation and maximum employment, Federal Reserve Board Chair Janet Yellen told the Senate Banking Committee Thursday.
"We want and intend to put in place the monetary policy that's consistent with achieving those objectives," she told the panel in response to a question, after repeating the testimony she offered to the House Financial Services Committee. She reiterated policy is not on a preset course and data will dictate rate hikes.
She called a decision to stop or delay interest rate hikes "premature," but noted monetary policy takes global economic and financial events into consideration.
Offering no clear direction on the possibility of negative rates, Yellen said they were considered and rejected in 2010, but negative rates are being reevaluated, with no determination yet as to whether such a move would be viable if needed.
“We haven’t finished that evaluation,” Yellen responded. “We need to consider the U.S. institutional context and whether they would work well here. It’s not automatic. There are a number of things to consider. So I wouldn’t take those off the table, but we would have work to do to judge whether they would be workable here.”
Yellen said oil prices have "surprised" the markets and the Fed, but the strength in the dollar was expected, but not to the level it has gone.
Recession is always a possibility, she said in response to a question by Committee Chairman Richard Shelby, R-Ala., but the "evidence" points to an expanding economy.
Noting that "a lot has happened" since December, Yellen said the Fed is "evaluating" how these changes impact the Fed's "outlook or our assessment of the balance of risks. The March FOMC meeting will provide updated predictions, she said, "that will update markets on our thinking."
She noted that in her opinion "a downturn sufficient to cause the next move to be a cut" is unlikely.
