US Federal Reserve Chair Janet Yellen on Friday said she expects to begin raising interest rates later this year — if the job market improves and the US central bank is confident inflation is set to climb closer toward its target rate.
She said the US economy was “well positioned for continued growth,” but at the same time highlighted a number of headwinds that threaten progress.
She cited disappointing wages and the large number of people who want to work full-time, but can only find part-time jobs.
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She added that the housing recovery has been lackluster and business investment modest.
The Fed has kept its key benchmark rate at a record low near zero since December 2008.
“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,” Yellen said to the Greater Providence Chamber of Commerce in Providence, Rhode Island.
However, when the central bank finally begins to raise rates, Yellen said it would proceed cautiously, “which I expect would mean that it will be several years before the federal funds rate would be back to its normal, longer-run level.”
Yellen’s latest comments were made several weeks before the Fed’s next policy meeting on June 16 and June 17. Minutes from its meeting last month released earlier this week all but ruled out a rate hike next month.
Many economists now predict the Fed is set to wait until at least September and that the central bank is to move very gradually with one or two quarter-point rate hikes this year.
“Assuming that economic growth does rebound ... we don’t think the Fed can wait any longer than September,” Capital Economics chief US economist Paul Ashworth said.
Yellen reiterated that policymakers need to see “continued improvement in labor market conditions.”
They also want to be “reasonably confident” that inflation will approach the Fed’s 2 percent target in the medium term.
“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 said.
However, Yellen also warned of waiting too long.
Any changes to monetary policy are likely to take time to work their way through the economy, so “delaying action to tighten monetary policy until employment and inflation are already back to our objectives would risk overheating the economy,” she said.
Earlier on Friday, the government reported that core consumer prices rose by 0.3 percent last month. It was the largest one-month gain since January 2013, although overall prices were up just 0.1 percent, held back by a further drop in energy costs.
Yellen did not mention the inflation report in her remarks.
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