Earlier on Tuesday, Richmond Fed President Jeffrey Lacker said the central bank will likely have to raise interest rates more rapidly than financial markets now expect. "After all, we think that monetary policy will be tightened by much more than investors are anticipating in the USA, but generally remain at least as loose as they are expecting elsewhere".
Yellen told the US Senate's banking committee that a "gradual rise in rates will be required" and that waiting too long "would be unwise". "Total consumer prices as measured by the personal consumption expenditures (PCE) index rose 1.6 percent in the 12 months ending in December, still below the [Federal Open Market Committee's] 2 percent objective but up 1 percentage point from its pace in 2015".
"But a few Japanese exporters are selling dollars at the moment, disappointed that it didn't go even higher after the weekend meeting" of U.S. President Donald Trump and Japanese Prime Minister Shinzo Abe, who apparently did not discuss currency policy or trade protectionism, Ogino said.
But he said that prepping markets well in advance makes sense to avoid a repeat of 2013's "taper tantrum", when interest rates spiked following the Fed's signal that balance sheet purchases would end. At the same time, average hourly earnings rose 2.5% from a year earlier, the weakest since August. "I don't have all the facts at my fingertips, I believe our banks are more profitable", she said. "The markets over-reacted". The central bank's current rate target lies between 0.5% and 0.75% after raising rates twice previous year and said there would three further hikes in 2017. The overnight lending rate is now targeted in the 0.5 percent to 0.75 percent range.
FOMC members in January indicated that three more increases are likely in 2017. Futures indicate markets expect a 43% chance of at least three hikes this year, according to CME Group.
She cautioned that any spending plans should be consistent with putting the budget on a "sustainable trajectory". The upshot: A rate increase in March is "quite viable - depending on the data and markets developments over the next month, of course", he wrote.
Federal Reserve Chair Janet Yellen sounded a slightly hawkish tone on Tuesday, warning about the risk of monetary policy becoming too accommodative.
Paul Ashworth, chief US economist at Capital Economics, noted that Congress' deadlock over revamping or axing Obamacare showed that "fiscal stimulus could now be delayed for some time". The recent rise in mortgage rates may restrain housing and Yellen stuck to message that a rate hike will likely be appropriate at one of its coming meetings if employment and inflation evolve in line with expectations.
Although Trump criticized the Fed during the campaign for keeping rates near zero, allegedly to help then-president Barack Obama, he is unlikely to look favorably on higher rates that would crimp economic growth and investment.