The US Federal Reserve's balancing act - Counting the Cost

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The US Federal Reserve's balancing act - Counting the Cost

US Federal Reserve head Janet Yellen gave her verdict on the US economy under President Donald Trump as speculation over who will replace her as the world's top banker gathers pace.

In her testimony before Congress, Yellen said the policies of Trump were adding uncertainty to the timing of future rate rises as was the outlook for inflation. Never in recent economic history have interest rates been so low for such a long period of time.

Central bankers have also been supercharging the economy on quantitative easing, which means buying up financial assets like bonds. However, as the economy is getting better, it's time to scale back monetary policies. But it's a balancing act. The Fed has already lifted rates twice this year and wants to hike again - provided the conditions are in place. And there's uncertainty about where the global economy is headed next which spells uncertainty for borrowers and mortgage holders.

Paul Donovan, the global chief economist with Zurich-based UBS Wealth Management Bank, thinks it's time for the US to scale back the measures put in place during the 2008 financial crisis.

"Now is the right time, now is perhaps a little late in the process. The US economy has got full employment, it's got reasonable wage growth, it's got inflation which is in line with its long-term average. Growth is operating around normal sorts of levels. In other words, almost everything about the US economy is normal except for the Federal Reserve's policy," says Donovan.

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US, Al Jazeera, Counting The Cost
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