Fed’s Yellen gives clear signal for interest rate hike in December

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Federal Reserve chair Janet Yellen Thursday said she expects the long-anticipated rise in interest rates to begin gradually in December, to avoid an abrupt hike later on.

Yellen, who was speaking at the University of Massachusetts at Amherst, said that projection was based on her expectation that the labour market and economy continue to improve, and the projection that inflation will gradually move up towards the 2 per cent goal set by the Fed.

“Most FOMC [Federal Open Market Committee] participants, including myself, currently anticipate that achieving these conditions will likely entail an initial increase in the federal funds rate later this year, followed by a gradual pace of tightening thereafter,” she said, according to a transcript of her speech.

Just last week, the Fed put off raising interest rates from the historic low of near zero that has prevailed for years, since the recession in 2007. Yellen said a raise as early as October remained “a possibility.”

The final scheduled 2015 policy statement is December 16.

Yellen told her Amherst audience that it was important to go ahead with gradual interest rate increases even if the 2-per-cent inflation goal has not been reached.

The difficulty with delay is that if an interest rate is put off for too long, “we would likely end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of our goals,” she said.

An abrupt tightening would risk disruption of financial markets and “perhaps even inadvertently push the economy into recession,” she said.

Yellen experienced a temporary illness at the end of the speech, and was seen by emergency medical technicians on site at the university (known as UMass), a Fed spokesman told dpa.

“Chair Yellen felt dehydrated at the end of a long speech under bright lights,” the spokesman said. “As a precaution she was seen by EMT staff on site at UMass Amherst. She felt fine afterwards and has continued with her schedule Thursday evening.”

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