In her semiannual report on monetary policy to the Senate Banking Committee, Federal Reserve Chairwoman Janet Yellen did not rule out the central bank raising short-term interest rates at its March policy meeting. She presented a positive report of the economy, noting job gains and stronger wage growth. This led her to remark that an increase in the federal-funds rate would likely be appropriate at the Federal Open Market Committee’s upcoming meetings, as long as job gains and inflation continue as the Fed expects.
Ms. Yellen took numerous questions on the Fed’s strategy for dealing with the balance sheet, which currently stands at about $4.5 trillion. She noted that the Fed does not want to use the balance sheet as an active policy tool and that policy makers want to shrink it in an orderly and predictable way.
When asked about the impact changes in fiscal policy could have on the economy, Ms. Yellen held to her previous remarks that it is too early to tell. She noted that most Fed officials would like greater clarity on fiscal policy before trying to incorporate it into their forecasts.
Ms. Yellen also fielded questions on regulation, specifically the effect it has had on community banks. She stated that the Fed has been working to reduce the regulatory burden on community banks and that Congress should consider easing some of the more burdensome requirements levied on small banks by Dodd-Frank.