Fed Chair Janet Yellen says interest rates may increase to 2%

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ANN ARBOR, Mich. — Federal Reserve Chair Janet Yellen paid a visit to the University of Michigan on Monday afternoon. She was the featured speaker in a discussion with U-M Ford School of Public Policy Dean Susan Collins. They talked about the state of the economy, interest rates, the labor force and much more.

Yellen said that the United States economy has greatly improved since the 2008 recession. Unemployment rose to 10 percent during that time. Right now, it is only at 4.5 percent.

“In my view, it is pretty healthy,” the federal reserve chair admitted. “It took many, many years to get unemployment down. I would say a better forward looking measure for inflation is about 1.75 percent, just a little under 2 percent, but reasonably close. In terms of the goals Congress has assigned us, I’d say we are doing pretty well with growing at a moderate pace; mainly supported by consumer spending. But housing is a little bit healthier than its been, investment spending is showing a little bit greater strength.”

She said that the economy will probably grow at a moderate pace. The Fed will continue to set monetary policy to sustain what they’ve achieved.

“We think it’s appropriate to gradually raise the federal rate. Although interest rates are low, we think a gradual path of increases can get us to a neutral stance. We don’t want to wait too long to have that happen. Two percent is our inflation objective. It’s where we would like the inflation rate. I think we’ve had good success in achieving that.”

However, Yellen said this is not a time for complete celebration. There are some issues with the labor force in this country. The chairwoman points to an aging population and the pace of immigration as possible causes.

“The problem is productivity growth is very low when it takes a lot of labor to produce not very much output,” she explained. “What that points to is that output per worker is growing at a slow pace. We’re not absorbing slack from the labor force. I think of that as reflecting two pieces. First, how fast is the labor force growing? Second, how fast is the output per worker or per manhour? Since 2011, output per worker has grown by half of a percent per year, which is an extremely low pace. My guess is that it will pick up.”

With such a demanding job, Yellen was asked what she does to step back and relax.

“First of all I try to come into the office having a good night sleep,” the federal reserve chair answered. “I’ve discovered over the years that unplugging from electronics makes me feel calmer. I have the pleasure of working with a talented group of staff at the Federal Reserve that I’m able to collaborate with. I’m not on my own to craft policy. I enjoy cooking and we like to eat out.”

Students we spoke to said Yellen’s speech was very insightful and that they learned more about the inner workings of the U.S. financial system.

“Overall, I thought it was an interesting speech,” said U-M senior Kevin Vasher. “I wish she would have dealt a little less of an overview about what she does and a little more into her opinions on things. Although it was very objective, it does seem like she would not be a fan of the big banks. I didn’t know that she was part of the writers of the Dodd-Frank Act. Interesting as she brought that in there as she spoke of the banks needed the liquidity. I thought that might have been a shot at President Trump.”

Chelsea High School senior Zach Lee added: “I didn’t necessarily agree with everything, but she had very good answers. It was pretty much what she had been saying for the past few months about the Federal Reserve raising interest rates. She basically explained why they are doing that. It was nice to hear some of the reasoning behind the choices that The Fed is making.”

Fed Chair Janet Yellen is serving the final year of her four-year term expiring in 2018.

 

U-M President Mark Schlissel introduced Fed Chair Janet Yellen and Ford School of Public Policy Dean Susan Collins.

 

Students and other guests watching the discussion with Collins and Yellen.

 

Susan Collins, Dean of the Ford School of Public Policy at the University of Michigan.

 

Janet Yellen, Chair of the United States Federal Reserve Board

 

A discussion between Dean Susan Collins and Fed Chair Janet Yellen at U-M Ann Arbor

 

The special event was held inside the Rackham Auditorium on the University of Michigan campus.

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