Fed chair Janet Yellen steers clear of politics in 1st decision since Trump's win

Pity the poor central banker of the world's biggest economy. And Janet Yellen, chair of the U.S. Federal Reserve, also has to navigate a fractious relationship with the incoming president of the United States.

So it was an interesting tightrope to walk as she tried to stay out of the debate over Donald Trump's economic policies while shepherding in the first rate hike in a year, only the second in a decade.

Trump, after all, spent much of the campaign trashing Yellen. "She should be ashamed," Trump said back in September, claiming that the Federal Reserve was not acting independently.

Understatement of the day

In the understatement of the day, Yellen said, "We are operating under a cloud of uncertainty at the moment." Still, she was deliberate and careful to stick to monetary policy.

"Let me be careful that I'm not trying to provide advice to the new administration or to Congress as to what is the appropriate stance on policy," Yellen told a news conference after the Fed decision to raise rates.

Central banks don't debate governments over fiscal measures. They wait and see what happens and plot their own course as a reaction to what's actually happening.

Staying put until 2018

But is it even possible to avoid politics amid all the economic uncertainty out there today? 

"She was working pretty hard I would say," says Edward Harrison, founder of Credit Writedowns.

Yellen was asked repeatedly about Trump's proposed tax cuts and plans for fiscal stimulus. 

"She directly avoided giving a straight answer," Harrison says.

Yellen trudged through the news conference sticking to her notes. She maintained the rate hike is a vote of confidence in the American economy. She said she would stay on as Fed chair until her term expires in 2018.

Trump has made it clear he doesn't want Yellen running the central bank, but the chair isn't backing down, saying she intends to serve out her term.

"I guess the way I think about it is that I was confirmed by the Senate to a four-year term. The term of the Fed chair was not meant to coincide with the president," she said at yesterday's news conference.

Follow the dots

Yellen also said she expects three more rate hikes in 2017. During the financial crisis in 2008, then Fed chair Ben Bernanke developed a system to telegraph what members of the central bank were thinking about the direction of rate hikes — the now notorious dot plot. It was largely a way to convince investors the bank wasn't going to raise rates any time soon.

Now, things have changed. Now the bank is trying to raise rates.

U.S. Federal Reserve Dot Plot

"They've become a slave to that dot plot," says Frances Donald, senior economist at Manulife Asset Management.

Besides, she says, everyone knows that dot plot has been famously unreliable. Last year the dot plot said there would be four rate hikes in 2016. We only ended up with one.

"So I think we need to take it with a grain of salt, but also recognize it's a good clue as to how the Federal Reserve is thinking about the next year or two," says Donald.

A deft play

On a day when Yellen tried hard to avoid politics, she showed a pretty deft political hand of her own. She stuck to a plan to raise rates that she'd spent months telegraphing. She admitted uncertainty, but wasn't drawn into a debate with a wildly unpredictable president-elect, and she left her options open by leaning on the dot plot looking forward. 

And in time of such great confusion and uncertainty, there's not much wrong with taking a wait and see attitude to the economy.