Sat, Sep 26, 2015 - Page 15 News List

Yellen expects the Fed to raise rates by year’s end

STILL ON TRACK:The Fed chair said global weakness would likely not dissuade a rise by December, and temporary factors will fade to allow inflation to return to 2%


US Federal Reserve Chair Janet Yellen speaks during the annual Philip Gamble Memorial Lecture at the University of Massachusetts Amherst on Thursday.

Photo: Bloomberg

US Federal Reserve Chair Janet Yellen on Thursday said that she expects the Fed to begin raising interest rates from record lows by the end of the year.

In a lecture at the University of Massachusetts at Amherst, Yellen said she thought inflation would gradually move up to the Fed’s target rate of 2 percent as unusually low oil prices and other factors prove temporary. She also said that global economic weakness will not likely be significant enough to dissuade the Fed from raising its key short-term rate from zero by December.

Yellen’s comments may help clarify doubts about the Fed’s intentions that deepened last week after its latest policy meeting ended. The Fed chose not to raise rates, citing global economic pressures and concern about excessively low inflation.

That decision raised worries that the Fed had greater concerns about economic problems in China and falling stock markets than investors had previously thought.

In her speech on Thursday, Yellen said Fed officials continue to monitor economic troubles abroad. However, she said officials do not think those challenges will significantly influence the central bank’s interest-rate decisions.

Toward the end of the speech, Yellen, 69, paused twice for several seconds, appearing to have lost her place in the text.

The Fed said in a statement later that Yellen “felt dehydrated at the end of a long speech under bright lights.”

The Fed statement said she was seen by emergency medical personnel and “felt fine afterward and has continued her schedule Thursday evening.”

At a news conference last week, Yellen had avoided saying whether she herself still thought a rate hike would be justified this year.

She said that she preferred to convey the collective view of the Fed’s policymaking committee, which establishes the central bank’s rate decisions.

However, on Thursday, Yellen included herself, saying: “Most of my colleagues and I anticipate that it will likely be appropriate to raise the target range for the federal funds rate sometime later this year.”

The Fed has two remaining meetings for this year, Oct. 27 and Oct. 28 and Dec. 15 and Dec. 16.

Many economists say they doubt the Fed would have enough new information to be confident about hiking rates next month, but say they do expect a move in December as long as nothing unexpected happens to threaten the economy.

As she has before, Yellen stressed that when the Fed does begin raising rates, it expects the increases to be extremely gradual. The central bank has left its benchmark rate at a record low since 2008. It last raised rates in 2006.

She also emphasized that the Fed has made no final decision about a rate hike.

The decision still depends on further progress toward the Fed’s dual mandates: Maximizing employment and maintaining price stability, which the Fed defines as inflation rising at a modest annual pace of 2 percent.

In August, the US unemployment rate reached a seven-year low of 5.1 percent, essentially achieving the Fed’s job goal. However, inflation has been running below the Fed’s target for more than three years and recently has fallen even farther from the 2 percent goal.

Yellen said Fed officials still think the depressive effects of the US dollar and energy prices will fade, allowing inflation to return to the 2 percent level. She said that the Fed expects low unemployment to eventually accelerate wage gains.

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