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Yellen Says Rate Hike Likely This Year
World Economy

Yellen Says Rate Hike Likely This Year

Federal Reserve Chairwoman Janet Yellen said she saw signs the economy was improving and said she expects a rate hike to be needed this year.
“I expect that it will be appropriate at some point later this year to take the first step to raise the federal-funds rate and thus begin normalizing monetary policy,” MarketWatch quoted her as saying.
Stocks SPX, +1.23% trimmed gains after Yellen’s comments were released. Treasury yields rose after the remarks and the dollar edged higher. Though the Yellen comments are not out of line with previous pronouncements, traders have priced in a dovish view of when and how fast US interest rates will be hiked.
“Overall, the remarks will remind markets that they are pricing in a lower path for rate hikes than Yellen might be thinking at least for 2015, although there is still a lot of uncertainty in her own mind on that score,” said Avery Shenfeld, chief economist at CIBC World Markets.
In a speech to The City Club of Cleveland, Yellen was upbeat about the outlook, laying out her view of a US economy close to the point of achieving a virtuous circle, where job gains lead to stronger consumer spending which then sparks more employment and wage gains.
“I think that many of the fundamental factors underlying US economic activity are solid and should lead to some pickup in the pace of economic growth in the coming years. In particular, I anticipate that employment will continue to expand and the unemployment rate will decline further,” Yellen said.

Encouraging Data
Yellen said she saw “hints” of wage gains in the recent data and “encouraging” data that consumer spending is picking up.
The Fed chairwoman did not seem in a rush to move and her remarks also suggest a preference for one rate move this year.
She noted that the labor market has improved but “still has not fully recovered” and the course of the economy and inflation remained highly uncertain and something unexpected could delay or accelerate the first step.
In an extended question-and-answer session with the audience, Yellen passed when given the opportunity to criticize the International Monetary Fund’s call for the US central bank to delay a rate hike until 2016.
Yellen said the IMF’s opinion is shared by some Fed officials “and so it is part of the spectrum of opinion.”
Asked about what she thinks are pending “threats to America,” Yellen said the biggest challenge for the Fed is to make sure the financial system is strong and well-regulated so that there is no repeat of the financial crisis “in the lifetimes of anyone in this room and hopefully not the lifetimes of our children, either.”

 

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