Tax reform helping boost economic growth outlook, Yellen says

Fed Chair Janet Yellen   Mark Wilson  Getty Images

Fed Chair Janet Yellen Mark Wilson Getty Images

Federal Reserve Chair Janet Yellen called the digital currency bitcoin a "highly speculative asset" that "doesn't constitute legal tender".

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation.

In the latest set of quarterly forecasts released Wednesday, the median estimate for economic growth next year jumped to 2.5 percent from 2.1 percent. Reserve Bank of Australia Governor Philip Lowe said this month that the fascination with cryptocurrencies "feels more like speculative mania than it has to do with their use" as a form of payment. "While we're looking at research on this topic, there are, to my mind, limited benefits to introducing it, a limited need for it and substantial concerns", Yellen said. The Federal Reserve has already jacked up rates and the pace of economic growth has risen not fallen. She answered by saying that, to date, the Fed has not issued any specific missives to banks on the subject.

The expected fiscal stimulus, coming on the heels of a flurry of relatively bullish data, cleared the way for the U.S. central bank to raise rates by a quarter of a percentage point to a range of 1.25 percent to 1.50 percent.

Officials also boosted their economic forecasts, projecting 2.5% growth in GDP in 2017 and 2018, due in part to planned tax cuts.

This is the fifth time the Fed has lifted interest rates since the 2008 financial crisis. She said that if stock prices were to suddenly "adjust" downward, the economy and the financial system should be able to withstand it. Though Yellen's term as chair ends in February, she will largely be expressing the views within the wider Fed rate-setting committee.

The only major question mark is the persistent sluggishness of price inflation, which is on pace to undershoot the Fed's 2 percent annual target for the sixth consecutive year. While the Fed anticipates wages are likely to rise faster next year, Yellen said it would be mainly because unemployment is low and businesses are having trouble finding workers, not because of the tax plan.

That outlook is unchanged from the last round of forecasts in September.

In her statement, Yellen gave an upbeat assessment of the economy she leaves behind.

Prime Minister Theresa May's government suffered a defeat on Wednesday, when lawmakers forced through changes to its Brexit blueprint that ministers said could endanger Britain's departure from the European Union.

At some point, interest rates could get so high that consumers would have to change their spending habits.

Trump has made clear that he favors low rates. The new tax code once implemented will lower the burden of corporates, spur domestic investments and stimulate economic growth. In November, U.S. employers added a substantial 228,000 jobs, the 86th straight month of gains, the longest on record, and the unemployment rate held at 4.1 percent, a 17-year low. Rate hikes are usually intended to limit inflation, but Fed officials appear to assume that continued rate increases won't stop inflation from climbing above its current 1.6 percent level.

At the same time, the committee's median forecast for long-run expansion was unchanged at 1.8 percent, suggesting officials aren't yet convinced the tax package will significantly affect the economy's capacity for growth.

Even before Wednesday, most analysts had said they thought the still-strengthening U.S. economy would lead the Fed to raise rates three more times next year.

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