Fed May Be Split on Assessment of U.S. Economy

In a recent speech, “The Outlook, Uncertainty, and Monetary Policy,” Federal Reserve (“Fed”) Chair Janet Yellen stated that global economic and financial uncertainty, driven largely by the developments in China and the collapse in oil prices, has amplified the risk to the U.S. economy and justified a slower path of an interest-rate increase.

“Given the risks to the outlook, I consider it appropriate for the committee to proceed cautiously in adjusting policy,” Ms. Yellen said but did not give details about the timing of the next rate increase. “I anticipate that the overall fallout for the U.S. economy from global market developments since the start of the year will most likely be limited, although this assessment is subject to considerable uncertainty.”

According to a recent Wall Street Journal article, Ms. Yellen’s careful stance contrasts with recent statements from some Fed officials who have adopted a more upbeat tone. Speaking in Singapore hours before Ms. Yellen was to deliver her speech, San Francisco Fed President John Williams delivered a more positive assessment of the U.S. and world economies.

“I don’t see a looming global crisis,” Williams said. “If we see inflation continuing to consistently pick up, that would argue for a slightly steeper path for [monetary] policy.”

These divergent messages suggest a split among Fed policy makers that could color the path of rate increases, according to the Wall Street Journal.

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