Yellen expects to raise interest rates gradually

Wednesday, Feb 10 2016

Chair Janet Yellen said the Federal Reserve still expects to raise interest rates gradually while making it clear that continued market turmoil could throw the central bank off course from the multiple increases that policy makers have forecast for 2016. “Financial conditions in the United States have recently become less supportive of growth,” Yellen said in testimony prepared for delivery Wednesday before the House Financial Services Committee in Washington.

“These developments, if they prove persistent, could weigh on the outlook for economic activity and the labor market.” With her testimony on Wednesday, Yellen joined Vice Chairman Stanley Fischer and other senior Fed officials in declaring it’s too soon to tell whether sharp drops in stocks, oil prices and some bond yields represent passing volatility or reflect worsening global economic fundamentals that will dampen growth and inflation in the U.S. “The FOMC anticipates that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate,” Yellen said, repeating language from the committee’s January statement almost verbatim.

Yellen noted that U.S. economic growth in 2015 slowed to an estimated 1.75 percent, restrained especially by the impact of a strengthened dollar on exporters. Still, she said, household spending had gotten a boost from lower fuel prices and steady jobs growth, a trend she expected will continue. “Ongoing employment gains and faster wage growth should support the growth of real incomes and therefore consumer spending, and global economic growth should pick up over time, supported by highly accommodative monetary policies abroad,” Yellen said.

Source: Bloomberg.com

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