Fed's Yellen on Raising Rates; PR
Federal Reserve Board Chair Janet Yellen delivered her Semiannual Monetary Policy Report to the House Committee on Financial Services yesterday. On raising interest rates she said, "In its most recent statement, the FOMC again noted that it judged it would be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term. The Committee will determine the timing of the initial increase in the federal funds rate on a meeting-by-meeting basis, depending on its assessment of realized and expected progress toward its objectives of maximum employment and 2 percent inflation. If the economy evolves as we expect, economic conditions likely would make it appropriate at some point this year to raise the federal funds rate target, thereby beginning to normalize the stance of monetary policy. Indeed, most participants in June projected that an increase in the federal funds target range would likely become appropriate before year-end <b:>`_. But let me emphasize again that these are projections based on the anticipated path of the economy, not statements of intent to raise rates at any particular time.... That said, the importance of the initial step to raise the federal funds rate target should not be overemphasized. What matters for financial conditions and the broader economy is the entire expected path of interest rates, not any particular move, including the initial increase, in the federal funds rate. Indeed, the stance of monetary policy will likely remain highly accommodative for quite some time after the first increase in the federal funds rate in order to support continued progress toward our objectives of maximum employment and 2 percent inflation." Also, Foreign Policy wrote about the Yellen testimony in an article entitled "U.S. Fed Chief to Puerto Rico: When It Comes to $72 Billion in Debt, You're on Your Own." It says, "Acosta Febo's comments did little to quell concerns that investors are going to take a hit on their bets in Puerto Rico. The island's bonds are popular with money market fund managers [sic] because they're free from federal tax.... This is potentially bad news for American investors. In 2013, about three-quarters of municipal bond mutual funds had exposure to Puerto Rican debt." [Note: We believe this last article erred and that almost no money market funds currently hold any Puerto Rico debt. Our latest Money Fund Portfolio Holdings (as of June 30) show just 3 funds with just over $16 million total in PR holdings, of which most is likely guaranteed by other entities.]
