When she testifies to Congress on Tuesday and Wednesday, Yellen will face Republican chairs on both Senate and House committees. Representative Jeb Hensarling of Texas and Senator Richard Shelby of Alabama have both expressed dissatisfaction with the central bank's policies.
The economy, rounding out its sixth year of expansion, is running strong. Inflation is low. Payrolls capped the biggest three-month gain in 17 years in January. Lower oil prices have delivered a windfall to American households. While slowing growth overseas has been among the few blights that has hurt exports and discouraged some companies from investing in new equipment, U.S. consumers are in good shape to continue driving the recovery.
Even with all this good news, Fed officials have continued to hold the benchmark lending rate near zero, where it has been for the past six years. In January, they began to worry about the risk of raising interest rates too early, while at the same time discussing in detail their tools for tightening policy.
If Fed policy makers have learned anything over the past six years, it is this: The recession left deep scars on the economy, across the housing and labor markets and the behavior of consumers and businesses. A rate increase in June or September is a big bet that the economy has enough momentum to continue healing even with higher borrowing costs.
That's essentially the debate on the Fed's Open Market Committee now, and one Yellen may have with the Congress this week.
"They seem very intent on hiking, but the last thing they want is an accident," said Ankur Patel, chief investment officer at r-squared macro LLC, a Birmingham, Alabama, firm that invests in macroeconomic trends. "If they raise too fast or too soon, they are almost certainly going to have to cut rates to stimulate again."
"It's an unprecedented environment and hard to assess the risks properly," he said.
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