Senate Dems to Yellen: Don’t rush rate hike

Multiple Senate Democrats urged Federal Reserve Chairwoman Janet Yellen to exercise caution as the central bank prepares for its first interest rate hike since the recession.

After years of near-zero interest rates and unprecedented attempts to stimulate the economy by the Fed, multiple members of the Senate Banking Committee told Yellen the Fed should be in no rush to hike rates. With the Fed eyeing a rate hike potentially this fall, Democrats argued there is ample evidence the economy could still use the support.

{mosads}Sen. Chuck Schumer (D-N.Y.) argued there is plenty of room for improvement in the labor market, while inflation remains under control, adding that those agitating for a rate hike should not outweigh people still struggling in the economy.

“I refuse to let the loud voices of those screaming for the Fed to act to drown out the voices of working families,” he said.

Sen. Sherrod Brown (D-Ohio), the top Democrat on the panel, also pressed Yellen on the risks of raising rates too soon.

The pressure marked an ideological shift, as Republicans had spent years criticizing the Fed’s easy-money policies and pushing it to raise rates. But now with a rate hike actually looming, it was Democrats’ turn to tell Yellen to pump the brakes.

Yellen said in her opening testimony that if the economy continues to improve as expected, the Fed “likely” will raise interest rates later this year.

But Democrats highlighted lackluster wage growth, as well as the significant number of Americans who are not working as much as they would like, to make the case that the Fed can do more by keeping borrowing costs as low as possible.

For her part, Yellen said the Fed is trying to balance the risks as much as possible but held to her opinion that the economy is getting close to the point where a rate hike would be appropriate.

“The labor market is getting demonstrably closer, in my view, by almost any metric, to a more normal state,” she said.

She added that there are risks that come with the Fed waiting too long to act, since it could force the central bank to raise rates more dramatically and more quickly than they would otherwise prefer, saying she was trying to pin down a “prudent and gradual” path for interest rates.

“We would need to tighten monetary policy in a very sharp way that could be disruptive,” she warned if the Fed was slow to move.

Yellen also pushed back against the notion that the Fed is overly worried about the reaction of financial markets when considering its policy moves. Without agreeing with the premise, Sen. Bob Corker (R-Tenn.) said many Fed watchers had the impression the central bank closely watched market reaction to help guide its policy.

Yellen said it was something they monitored, just like a host of other pieces of economic information.

“I would push back against the notion that we’re unduly affected by the ups and downs of the stock market,” she said. “I don’t think we pay undue attention to it, and I don’t think we should.”