Fed chairwoman cautions about later rate hikes

Federal Reserve Chair Janet Yellen, in response to a warning from a US congressman to halt global negotiations in the early stages of Donald Trump's presidency, said in a letter the Fed has the authority and responsibility to consult with its foreign counterparts and does so to benefit the United States.

Yellen, during prepared remarks before the U.S. Senate Banking Committee Tuesday said that "gradual increases in the federal funds rate will likely be appropriate".

While treading carefully and not commenting on specific policies - of which there are few in any case - Yellen responded to a question with a warning that USA fiscal outlook has been "a long standing problem".

For an economy operating at full employment, current interest rates are now are completely "out of whack", according to Gary Potter, co-head of the multi-manager team at BMO Global Asset Management.

President Trump said during a presidential debate, "Believe me, we're in a bubble right now, and the only thing that looks good is the stock market", He continued, "But if you raise interest rates, even a little bit, that's going to come crashing down".

Trump himself will also be able to appoint at least three new Fed governors within the next year and may seek a more pliant (in other words dovish) Fed in order to help implement his fiscal stimulus plans and counter the strength of the dollar. According to Kaplan, the US central bank should increase rates sooner rather than later, in order to avoid rapid rate hikes.

Trump has said his goal is to double economic growth, as measured by the gross domestic product, from the lackluster 2 percent annual rate that's prevailed since the recession ended in 2009 to a robust 4 percent rate or better.

Yellen seemed reserved regarding economic programs and procedures the US administration is willing to undertake to revive the economy.

Still, she said, rates will remain low by historical standards, and she cautioned "the economic outlook is uncertain", particularly before specific economic policy actions are taken.

USA consumer prices recorded their biggest gain in almost four years, jumping 0.6 percent in January.

Traders do not expect the policymaking Federal Open Market Committee to hike at the March session.

Benchmark two-year Treasury yields reached the highest since late December after Labor Department data showed the consumer-price index rose 0.6 percent in January, the most since February 2013.

Beyond Dodd-Frank, Yellen could be pressed about Republican efforts to diminish the Fed's independence, in part by subjecting it to more intensive audits.

  • Zachary Reyes