Yellen's gamble in withdrawing QE programme

JANET Yellen, the chair of the US Federal Reserve, is caught between Donald Trump and a hard place.

By most accounts, Mr Trump is an "easy money" guy who would prefer to keep today's low interest rates to boost job creation. For her part, Ms Yellen has committed the Fed to a gradual rise in rates and a tightening of credit. The idea is to pre-empt unwanted inflation or financial speculation in an economy at or near "full employment". At 4.4 per cent in June, the US unemployment rate is down from a recent peak of 10 per cent in October 2009.

The Fed began credit tightening in December of 2015 when it ended seven years of zero short-term interest rates. The Fed has raised the overnight Fed funds rate four times to its present range of one per cent to 1.25 per cent. Even at this level, credit is easy. Short-term rates are below current inflation, now about 1.6 per cent annually. Rates on home mortgages and business loans are higher, but still historically low.