Yellen expects Fed to start raising rates this year

Places confidence on the improving economy

Janet L Yellen, the Federal Reserve Chairperson, said on Friday that she still expected the Fed to start raising its benchmark interest rate later this year.

Weak growth during the first part of the year most likely reflected temporary disruptions, including the impact of winter weather, Yellen said in a speech delivered to the Chamber of Commerce in Providence, Rhode Island.

She added that government estimates also may have overstated the impact on the economy. “If the economy continues to improve as I expect, 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 normalising monetary policy,” Yellen said.

Yellen’s speech is the latest indication that the Fed’s plans have shifted only slightly in recent months even as disappointing data has piled up. While reflecting her personal view, it largely echoes an account published on Wednesday of the Fed’s most recent policy meeting.

The Fed has backed away from the possibility of raising rates as soon as June, but officials have made clear that they do not see a reason to wait much longer.

“Assuming that economic growth does rebound, and particularly now that there are signs of a pickup in underlying price inflation and wage growth, we don’t think the Fed can wait any longer than September,” Paul Ashworth, chief US economist at Capital Economics, wrote Friday after Yellen’s speech.

The Fed has held rates near zero since December 2008 as the centrepiece of its effort to strengthen the economy. A minority of Fed officials argue the economy is not yet strong enough to lift rates. Charles Evans, president of the Federal Reserve Bank of Chicago, argues the Fed should be patient until the rate of inflation rebounds, which he regards as unlikely before next year.

“I see no compelling reason for us to be in a hurry to tighten financial conditions before then,” Evans said on Wednesday in Munich.

In her speech, Yellen explained why she and other officials were inclined to move sooner, so long as they see the expected improvement in the economic data. She noted the economy added more than three million jobs last year, and that she expected economic growth in the rest of the world to strengthen. “The US economy seems well positioned for continued growth,” she said.

All’s Well Yellen!

Yellen says weak growth, winter effects may influence Fed
Says govt estimates may have overstated their impact on the economy
Confident about signs of pickup and feels Fed will hasten with its move
Says US economy will continue its growth trajectory