Washington: Federal Reserve Chair Janet Yellen said on Tuesday that it was too early to judge the tax reform plan proposed by President Donald Trump, but she urged caution on the federal debt front.
The 70-year-old Yellen said during an appearance before the Senate's Committee on Banking, Housing, and Urban Affairs that it would be "unwise" to wait too long to raise interest rates, EFE news reported.
"As I noted on previous occasions, waiting too long to remove accommodation would be unwise, potentially requiring the FOMC to eventually raise rates rapidly, which could risk disrupting financial markets and pushing the economy into recession," Yellen said in a prepared statement read to the committee.
The Federal Open Market Committee (FOMC), which sets monetary policy, left the benchmark interest rate unchanged in a range of 0.50 per cent to 0.75 per cent at its first meeting of the year on February 1.
Monetary policy makers have indicated that they expect to raise interest rates this year, with many analysts expecting the first rate hike at the March meeting.
Yellen commented on Trump's proposed tax cuts and spending increases, whose details have not been finalised.
"Changes in fiscal policy or other economic policies could potentially affect the economic outlook. Of course, it is too early to know what policy changes will be put in place or how their economic effects will unfold," Yellen said.
The Fed Chief said new economic policies should focus on improving productivity.
"While it is not my intention to opine on specific tax or spending proposals, I would point to the importance of improving the pace of longer-run economic growth and raising American living standards with policies aimed at improving productivity," Yellen said.
The Fed chair said changes in tax and spending should take into account the national debt.
"I would also hope that fiscal policy changes will be consistent with putting US fiscal accounts on a sustainable trajectory," Yellen said.
The Fed Chief said the economic outlook remained positive, with inflation rising slowly as the gross domestic product (GDP) continues to expand.
"My colleagues on the FOMC and I expect the economy to continue to expand at a moderate pace, with the job market strengthening somewhat further and inflation gradually rising to 2 per cent," EFE news quoted Yellen as saying.
The next FOMC meeting is scheduled for March 14-15.