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Yellen: Gradual interest rate hikes this year
July 15, 2015, 6:32 pm

If the Fed waits too long to raise interest rates, any prospective increases will be extensive and come quickly, Yellen said [Xinhua]

If the Fed waits too long to raise interest rates, any prospective increases will be extensive and come quickly, Yellen said [Xinhua]


The Federal Reserve is likely to gradually raise interest rates by the end of this year, its Chair Janet Yellen told Congress on Wednesday.

“In its most recent statement, the [Federal Open Market Committee] FOMC again noted that it judged it would be appropriate to raise the target range of the Federal Funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its two per cent objective over the medium term,” Yellen said in a prepared statement.

She said the timing of the gradual increases would be determined on a “meeting by meeting” basis of the FOMC.

Although Yellen offered nothing new from a similar statement she made last month, she did appear to show a commitment that interest rates must eventually be raised in late 2015, early 2016 at the latest.

She reiterated previous comments that while the pace of job gains had picked up, inflation is running below the level preferred by the FOMC at 2 per cent.

The FOMC sees that the stance of monetary policy will likely remain highly accommodative for quite some time after the initial increase in the Federal Funds rate in order to support continued progress toward our objectives of maximum employment and 2 per cent inflation.

However, if the Fed waits too long to raise interest rates, any prospective increases will be extensive and come quickly.

Some Fed critics have said that there hasn’t been a rate hike in 10 years. Between 2004 and 2008, interest rates peaked and then fell as the Fed tried to boost consumer confidence to keep the wheels of industry, productivity and investments grinding amid a global financial crisis.

They also point to the 5.3 per cent June unemployment rate, which fell from 5.5 per cent in May – the lowest rate since the financial crisis hit in 2009, as evidence that the economy is on the right track.

According to US Department of Labor statistics released earlier this month, the economy added 223,000 jobs. However, the same data showed that the overall size of the workforce had shrunk, indicating that the economy is not at full steam yet.

The BRICS Post with inputs from Agencies

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