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Yellen’s letter

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Janet Yellen has written a letter as a response to a previous letter calling for higher interest rates on behalf of savers. According to Bloomberg, Yellen said, Americans would have been worse off had the central bank not kept rates near zero since 2008, and repeated that she expects to tighten policy “gradually” after liftoff. Crucial points:

  • Most fed policymakers expect pace of rate hikes will be gradual
  • Yellen says overly aggressive increase in rates would at most benefit savers only temporarily
  • Yellen says overly aggressive rate hike could bring about lasting return to low rates

A direct quote:

“It remains critically important for all Americans, including savers, that monetary policy continues to foster economic expansion and stable prices. We all hope and expect that the economy will continue to expand, that the jobs market will continue to make progress, and that inflation will move toward our 2 percent price stability objective. If that is the case, my colleagues and I have indicated it will be appropriate to begin to normalize interest rates. Most of us expect the pace of that normalization to be gradual. An overly aggressive increase in rates would at most benefit savers only temporarily. Rather, it would undercut the economic expansion, necessitating a lasting return to low interest rates. Other countries have paid a heavy price for being forced to reverse course. Japan, where interest rates have remained near zero for most of the past 25 years, serves as a cautionary tale. “

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