Yellen Says Economic Expansion Has Gained Strength

Yellen Says Economic Expansion Has Gained Strength

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WASHINGTON — Janet L. Yellen, the Federal Reserve chairwoman, reported on Wednesday that the economic expansion had broadened and strengthened, and that she expected the growth to continue.
Ms. Yellen’s upbeat assessment, delivered in prepared testimony to a congressional committee, is likely to reinforce expectations that the Fed will raise its benchmark interest rate in December. It also raises questions about plans for a major tax cut aimed at stimulating growth.
“Economic growth appears to have stepped up from its subdued pace early in the year,” Ms. Yellen plans to tell the Joint Economic Committee. “Moreover, the economic expansion is increasingly broad based across sectors as well as across much of the global economy.”
The hearing on Wednesday morning may be Ms. Yellen’s last appearance before Congress in her current role. Her four-year term as the Fed chairwoman ends in early February, and she has said that she plans to leave as soon as her successor is sworn in. President Trump has nominated Jerome H. Powell, a Fed governor since 2012, to serve as the its next chairman.
Ms. Yellen was careful to say that the economy could be doing better. She noted that the pace of economic growth remained slow by historical standards. The two major determinants of growth, the number of workers and the productivity of the average worker, are rising slowly.
“In this regard,” she said, “the Congress might consider policies that encourage business investment and capital formation, improve the nation’s infrastructure, raise the quality of our educational system, and support innovation and the adoption of new technologies.”
She did not address whether the tax plan backed by Republicans would achieve this goal; she is likely to face questions on the subject from members of both parties at the hearing.
The economy is already growing faster than the Fed considers sustainable, given the size of the labor force and the slow pace of productivity growth. Ms. Yellen noted that the economy had shaken off the disruptions caused by hurricanes this fall. She said the Fed’s policymaking group, the Federal Open Market Committee, planned to continue raising the benchmark interest rate, winding down its own efforts to stimulate faster growth.
“With ongoing strengthening in labor market conditions and an outlook for inflation to return to 2 percent over the next couple of years, the F.O.M.C. has continued to gradually reduce policy accommodation,” Ms. Yellen said. “We continue to expect that gradual increases in the federal funds rate will be appropriate to sustain a healthy labor market and stabilize inflation.”

Follow Binyamin Appelbaum on Twitter @bcappelbaum.

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