The Federal Reserve does not have a “fixed timetable” for removing the current accomodative stance, Federal Reserve Chair Janet Yellen said in testimony on Wednesday.
Still, Yellen said many of her colleagues indicated in their recent projections that it would be appropriate to make a move in removing some of that accomodation this year if no significant new risks arise.
Yellen is speaking as part of her semi-annual testimony before the House Financial Services Committee about financial regulation on Wednesday. Investors are watching Yellen’s comments closely for clues about any potential changes to the timing of the next rate hike.
Yellen’s testimony follows the Federal Reserve’s decision to refrain from hiking the federal funds rate in September. Last week, the Fed decided to keep rates at 0.25 percent to 0.5 percent, rather than raising rates for what have been the first time this year.
Last week in a news conference following the decision, Yellen said she “would expect to see (a rate increase this year) if we continue on the current course of labor market improvement, and there are no major risks that develop and we stay on the current course.”
In the closely watched dot plot, Fed members forecast a median federal funds rate of 0.6 percent, indicating another hike would be in the cards before year end.
Meanwhile, the CME Group’s FedWatch tool pegs the implied odds of a hike in November at 8.3 percent and the odds of an increase the following month at 56.4 percent.
Earlier in prepared remarks, she said US banks are well capitalized, but they remain challenged by weak interest income.
During the remarks, Yellen said the Federal Reserve is also considering stress tests requiring more capital from the country’s biggest banks. She noted that commercial and industrial lending show robust growth.
The eight largest banks have doubled their equity to USD 800 billion since 2008, she said. The biggest banks have also increased their holdings of high-quality assets by USD 1 trillion during the past five years.
Banks are less reliant on short-term funding and showing improved profitability since the financial crisis, which precipitated greater government regulation on the financial sector.
More recently, financial regulation has come under a closer microscope in the wake of a retail banking scandal that has rocked Wells Fargo and led to the forfeiture of millions in unvested equity by its CEO and a former executive.
The US banking sector has struggled in a low-interest rate environment that has been ongoing for more than a decade.