Former Federal Reserve Chair Janet Yellen said she supports a 25-basis-point cut in the central bank’s benchmark interest rate, as the global economy weakens and inflation in the United States is lower.
“The global economy has weakened. I think partly it’s weakened because of conflicts over trade and the uncertainty that’s caused for businesses,” Yellen said at an Aspen Economic Strategy Group meeting in Aspen, Colorado, on Sunday evening.
The U.S. central bank is widely expected to cut interest rates by a quarter pointon Wednesday for the first time in more than a decade.
That’s despite recent economic data indicating that the U.S. economy is still going strong. The July jobs report is predicted to show 170,000 nonfarm payrolls being added and an extremely low unemployment rate of 3.7%, according to Refinitiv. On Friday, data showed that the U.S. economy grew at a better than expected 2.1% in the second quarter, due in part to strong consumer expenditure.
The United States isn’t an island. We’re part of the global economy. What happens in the rest of the world — in Europe, in Asia — affects the United States.
Janet Yellen; Former Federal Reserve Chair
Inflation in the U.S. also remains low — too low, according to Yellen.
“The United States isn’t an island,” she added. “We’re part of the global economy. What happens in the rest of the world — in Europe, in Asia — affects the United States. And it’s also true that U.S. monetary policy affects conditions all around the globe.”
Yellen led the Fed for a four-year term that ended February 3, 2018. Under her tenure, the Fed raised rates in December 2015 for the first time in nearly a decade. It was the start of an effort to hike rates back to a point where policymakers could have some leeway to reduce them again in the face of any future downturn.
Wednesday’s expected rate cut is seen as a pre-emptive move amid growing concerns over global growth outlook and the impact of the ongoing trade war between Beijing and Washington.
The central bank has said it’s worried about slowing world growth, the possible impact of trade wars and low inflation. It has also said it would act to extend the economic expansion, if needed.
Yellen explained the country’s focus should be on maintaining the conditions for a strong U.S. economy that can stay on an expansion path.
“I think in light of the risks, I would be inclined to cut a bit,” she said, referring to the Fed’s benchmark interest rate. “I wouldn’t see this as the beginning, unless things change, of a major easing cycle. But I do think it’s appropriate.”
— CNBC’s Patti Domm contributed to this report.
Author: Saheli Roy Choudhury