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22 May 2015
Fed’s Yellen: Rate hike expected “at some point this year”
FXStreet (Córdoba) - Federal Reserve Chair Janet Yellen said on Friday the bank will raise interest rates “at some point this year”, but will need to see continued improvement in labor market and be confident inflation will move to 2% over the medium term.
"I think it will be appropriate at some point this year to take the initial step to raise the federal-funds rate target and begin the process of normalizing monetary policy," Ms. Yellen said in the prepared text of comments to the Greater Providence Chamber of Commerce in Providence, R.I.
Yellen argued once the monetary policy normalization begins, the pace will be gradual and FOMC expects the process to take several years before the federal funds rate would be back to its normal, longer-run level. “The various headwinds that are still restraining the economy, as I said, will likely take some time to fully abate, and the pace of that improvement is highly uncertain”, she commented.
Yellen also said they will not embark in a preset course, and Fed “will adjust monetary policy in response to developments in economic activity and inflation as they occur”.
The Fed's the federal-funds rate, has been near zero since December 2008. This comments come just before the June 16-17 meeting and although latest comments didn’t rule out the lift-off could take place next month, it is highly “unlikely” as the latest minutes suggested.
Economy outlook
Even though the unemployment rate has come down close to levels that many economists believe is sustainable (5.4% in April) it “probably does not fully capture the extent of slack in the labor market”.
Regarding inflation, she acknowledged less progress has been made lifting the inflation rate near the 2% target.
The Fed is expecting growth to pick up in the months ahead. She noted several headwinds as restraining influences on the US growth, although they have been diminished. As external factors, she mentioned weak growth abroad, first in the Eurozone and then China, together with its accompanying implications for exchange rates, has dented US exports and weighed on our economy.
"I think it will be appropriate at some point this year to take the initial step to raise the federal-funds rate target and begin the process of normalizing monetary policy," Ms. Yellen said in the prepared text of comments to the Greater Providence Chamber of Commerce in Providence, R.I.
Yellen argued once the monetary policy normalization begins, the pace will be gradual and FOMC expects the process to take several years before the federal funds rate would be back to its normal, longer-run level. “The various headwinds that are still restraining the economy, as I said, will likely take some time to fully abate, and the pace of that improvement is highly uncertain”, she commented.
Yellen also said they will not embark in a preset course, and Fed “will adjust monetary policy in response to developments in economic activity and inflation as they occur”.
The Fed's the federal-funds rate, has been near zero since December 2008. This comments come just before the June 16-17 meeting and although latest comments didn’t rule out the lift-off could take place next month, it is highly “unlikely” as the latest minutes suggested.
Economy outlook
Even though the unemployment rate has come down close to levels that many economists believe is sustainable (5.4% in April) it “probably does not fully capture the extent of slack in the labor market”.
Regarding inflation, she acknowledged less progress has been made lifting the inflation rate near the 2% target.
The Fed is expecting growth to pick up in the months ahead. She noted several headwinds as restraining influences on the US growth, although they have been diminished. As external factors, she mentioned weak growth abroad, first in the Eurozone and then China, together with its accompanying implications for exchange rates, has dented US exports and weighed on our economy.