US Fed rate hike expected this year

US Federal Reserve chair Janet Yellen warns that "unanticipated developments" could delay or accelerate the increase of interest rates.
US Federal Reserve chair Janet Yellen warns that "unanticipated developments" could delay or accelerate the increase of interest rates.PHOTO: REUTERS

CLEVELAND • United States Federal Reserve chairman Janet Yellen, speaking after weeks of financial market turmoil over China and Greece, maintained her call for an interest rate increase this year as the US economy improves.

"I expect that it will be appropriate at some point later this year to take the first step to raise the federal funds rate and thus begin normalising monetary policy," Ms Yellen said in her first public remarks since the June meeting of the Federal Open Market Committee (FOMC). However, Ms Yellen cautioned that "the course of the economy and inflation remains highly uncertain, and unanticipated developments could delay or accelerate this first step" .

In her only mention of Greece in a 14-page speech delivered on Friday, she identified that the nation's debt crisis as one cause of uncertainty. "What this speech did was put Greece into context," said Mr Jacob Oubina, senior US economist at RBC Capital Markets LLC in New York. "What she basically told us is that the fundamentals in the US matter much more."

Ms Yellen, 68, is moving cautiously toward the first rate increase in almost a decade as the economic expansion enters its seventh year and unemployment falls.

In a generally upbeat assessment, she said the job market "still has not fully recovered".

Federal Reserve policymakers last month forecast two quarter-point rate increases this year.

The pace of tightening next year will be more gradual, the latest forecasts show.

Since the June meeting, the labour market has shown further gains, along with housing and manufacturing. Ms Yellen said her outlook for the economy and inflation is "broadly consistent with the central tendency of the projections submitted by FOMC participants in June".

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A version of this article appeared in the print edition of The Sunday Times on July 12, 2015, with the headline 'US Fed rate hike expected this year'. Print Edition | Subscribe