Yellen Signals Likely Rate Hike

Federal Reserve Chair Janet Yellen sketched a bright outlook for the US economy and for inflation prospects in coming months, saying the impact of the recent hurricanes will likely slow economic growth slightly but only temporarily and should be followed by a rebound by year’s end.

Her comments suggested that the central bank will soon resume raising interest rates to reflect the strengthening economy. Most economists foresee the next rate hike—the third this year—coming in December, AP reported.

Speaking to an international banking seminar, Yellen acknowledged that the persistence of undesirably low inflation this year has been a surprise. But she said she expected inflation to start picking up as the effects of temporary factors, such as falling prices for consumer cellphone service, begin to fade.

“Economic activity in the United States has been growing moderately so far this year, and the labor market has continued to strengthen,” Yellen said in a speech to a panel that included central bank officials from China, Japan and the European Central Bank.

Of the hurricanes that struck Texas, Florida, Puerto Rico and the Caribbean, Yellen noted that they caused enormous damage. But she added: “While the effects of the hurricanes on the US economy are quite noticeable in the short term, history suggests that the longer-term effects will be modest and that aggregate economic activity will recover quickly.”

Yellen said that the economy’s growth, as measured by the gross domestic product, might have slowed slightly in the July-September quarter as a consequence of the hurricanes but that growth is likely rebounding in the current quarter.

The Fed chair’s speech Sunday followed the central bank’s decision at its meeting last month to leave its benchmark short-term rate unchanged in a range of 1% to 1.25%.