Possible next Fed move is a cut if global growth continues to slow

Looking at the economy now, she said she sees strength despite the threats from abroad.

“So far, the economic data for the United States is solid and strong. We’ve got as you know about the lowest unemployment rate in about 50 years, continued solid job performance, low inflation,” she said. “My own view is that while we’ve long expected growth to slow in 2019 relative to last year, which probably will come in about 3 percent or more.”

Since the Fed began hiking rates in December 2015, it has followed with seven more increases that now have the fed funds rate in a range between 2.25 and 2.5 percent. Fed officials in December had indicated two more moves were likely in 2019 but since have backed off, most recently expressing a desire to be “patient” before any more action.

Yellen said that had she been asked in December for a forecast, as the Fed does quarterly, she probably would have figured two for this year as well.

“But I would have had a very wide uncertainty band around it,” she said.

In addition to the rate hikes, Yellen helped engineer the beginning of the balance sheet reduction. The plan was to allow a capped level of proceeds from the bonds roll off each month while still reinvesting the rest.

Yellen had said the process would be “like watching paint dry.” Market participants, however, have grown increasingly uneasy with the process, particularly as financial conditions have tightened. Her successor, Jerome Powell, recently came under fire for describing in December the runoff as being on “autopilot.”

Yellen said her assessment was meant to be “reassuring” but she thinks the current Fed needs to make clear that it was watching the process carefully.

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