Fed's Yellen vows to serve out term as chair

Federal Reserve chief Janet Yellen today vowed to serve out her four-year term until it expires at the end of January 2018, despite President-elect Donald Trump's criticism of her performance.

In her first public comments since Trump's surprise election last week, Yellen said, "It is fully my intention to serve out that term."

During the campaign, Trump criticised both the Fed and Yellen's handling of monetary policy.

But in testimony before the Joint Economic Committee, Yellen warned that experiences in other countries show that political meddling in central bank policies can be disastrous.

"Sometimes central banks have to do things that are not immediately popular," she said.
 

"We've seen really terrible things in countries where central banks are subject to political pressure," including hyperinflation, she added.

Responding to questions about Trump's pledge to implement spending and tax cuts to stimulate the economy, she said the new administration and Congress should weigh the costs and benefits, and focus on policies that increase US productivity.

Yellen cautioned that unlike the period after the financial crisis when stimulus was needed, the economy now is nearly at full employment.

With high public deficit and debt levels, she said, "It's clearly up to Congress and the administration to weigh the costs and benefits of fiscal policies that you will be considering."

Her advice would be to "choose policies that would improve that long-run growth and productivity outlook" by increasing the economy's productive capacity, she said.

Those policies also will factor into the Fed's thinking about the appropriate level of interest rates.

"When there's greater clarity about the economic policies that might be put into effect, the (Federal Open Market) committee will have to factor those assessments of their impacts on employment and inflation and perhaps adjust our outlook depending on what happens," she said.

She reaffirmed, however, the prevailing market view that the Fed will raise interest rates at the December 13-14 policy meeting.

She noted that since the last meeting "I do think that the economy's making very good progress toward our goals and that the judgment the committee reached in November still pertains.