Federal Reserve chief Yellen sees gradual rate hikes starting this year

With continued improvement in economic conditions, an increase in the target range for that rate may well be warranted later this year, says Federal Reserve Chair Janet Yellen.

March 29, 2015 02:24 am | Updated November 16, 2021 05:12 pm IST - SAN FRANCISCO/WASHINGTON:

Janet Yellen

Janet Yellen

Federal Reserve Chair Janet Yellen signalled that the U.S. central bank will likely start raising borrowing costs later this year, even before inflation and wages have returned to health, but emphasised the return to normal interest rates will be gradual.

A downturn in core inflation or wage growth could force the Fed to delay the first increase to borrowing costs since 2006, the central bank’s chief said on Friday, but policymakers should not wait for inflation to near the Fed’s 2 per cent goal before tightening monetary policy. The Fed has held short-term borrowing costs near zero since December 2008.

After the first rate increase, Ms. Yellen said, a further, gradual tightening in monetary policy would likely be warranted. If incoming data fails to support the Fed’s economic forecast, the path of policy will be adjusted, she said. “With continued improvement in economic conditions, an increase in the target range for that rate may well be warranted later this year,” Ms. Yellen said at a monetary policy conference at the Federal Reserve Bank of San Francisco.

Serious consideration Ms. Yellen added that while the Fed was giving ‘serious consideration’to beginning to reduce its accommodative monetary policy, the timing and the path of a Fed hike would depend on the incoming economic data.

“The actual path of policy will evolve as economic conditions evolve, and policy tightening could speed up, slow down, pause, or even reverse course depending on actual and expected developments in real activity and inflation,” she said. U.S. Treasury yields fell and held near session lows on Friday after the mildly hawkish comments and as investors bought bonds ahead of month-end rebalancing.

Still, traders of U.S. rate futures kept their bets that the Fed will wait until October to raise rates.

With labour markets looking set to improve further, and one-time downward pressure on inflation likely to dissipate, a ‘modest’ rate rise would be unlikely to put a halt to jobs growth, she said. At the same time, she said, raising rates too fast could undercut an economy that has for years been labouring against lingering headwinds from the severe recession.

Cautious approach Ms. Yellen, returning to the regional Fed bank she used to run, is under pressure to begin tightening monetary policy without disrupting the U.S. economic recovery underway.

The Fed signalled in its March statement that it was moving a step closer toward raising rates, though the central bank cut its economic outlook and slashed its median estimate for the federal funds rate, in a sign that it was prepared to move more slowly than the market expected ahead of the meeting.

While June remains on the table for the timing of the Fed’s first rate hike, Ms. Yellen’s comments since then suggest the central bank is more likely to move later in the year.

Top News Today

Sign in to unlock member-only benefits!
  • Access 10 free stories every month
  • Save stories to read later
  • Access to comment on every story
  • Sign-up/manage your newsletter subscriptions with a single click
  • Get notified by email for early access to discounts & offers on our products
Sign in

Comments

Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.

We have migrated to a new commenting platform. If you are already a registered user of The Hindu and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.