Treasuries Could Fall Further as U.S. Economy Improves, Says Yellen

25 May 2015 | Author: | No comments yet »

Janet Yellen tone suggests choppiness for global markets in near future.

WASHINGTON: Janet Yellen said Friday she expects the Federal Reserve to begin raising interest rates “at some point this year,” saying delaying the long-awaited move risks the economy overheating.

Federal Reserve Chair Janet Yellen on Friday said she expected the central bank to raise interest rates this year, as the U.S. economy was on course to bounce back from a sluggish first quarter and headwinds at home and abroad waned. The comments came two days after minutes of the Fed´s policy board made clear that slow economic growth in recent months meant it was not expecting to increase the benchmark Fed funds rate before late July, despite earlier forecasts of a mid-year hike. Yellen spoke amid growing concern at the Fed about possible market volatility once it begins to raise rates, and a desire to begin coaxing skeptical investors towards accepting the inevitable: ending a 6-1/2-year stretch of near-zero interest rates.

She said at the time that the Fed is giving “serious consideration” to beginning to reduce policy accommodation. “With continued improvement in economic conditions, a (rate) increase … may well be warranted later this year,” Yellen said in March. Yellen’s tone on when the rate lift-off would begin appeared stronger on Friday, as she and other Fed policymakers try to close the gap between the central bank’s view and that of the market. Short-term interest rates rose slightly before Yellen spoke on Friday, and investor expectations of when the Fed might begin to hike rates pushed forward, edging from December towards October. But she also warned of waiting too long, saying that “delaying action to tighten monetary policy until employment and inflation are already back to our objectives would risk overheating the economy.”

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