Yellen’s Speech on Inflation, Fed Policy (Text)

25 Sep 2015 | Author: | No comments yet »

Janet Yellen Expects Interest Rate Hike This Year.

In Federal Reserve Chairwoman Janet Yellen’s speech Thursday afternoon, investors were hoping she would clarify whether the U.S. central bank will raise interest rates this year.

WASHINGTON – Chair Janet Yellen said Thursday that she expects the Federal Reserve to begin raising interest rates from record lows by the end of the year. Fed watchers were again left adrift earlier this month when the Federal Open Market Committee (FOMC) decided not to raise rates, which was somewhat unexpected. In a lecture at the University of Massachusetts at Amherst, Yellen said she thought inflation would gradually move up to the Fed’s target rate of 2 per cent as unusually low oil prices and other factors prove temporary. Most FOMC 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.

And she suggested that global economic weakness won’t likely be significant enough to dissuade the Fed from raising its key short-term rate from zero by December. But that target hasn’t been easy to reach in recent years, particularly given that the job market still has some room for growth: “In the wake of the 2008 financial crisis, however, achieving both this objective and full employment (the other leg of the Federal Reserve’s dual mandate) has been difficult,” Yellen said.

That decision raised worries that the Fed had greater concerns about economic problems in China and falling stock markets than investors had previously thought. When the rate hike happens, it will be the first time the Fed has raised interest rates in nearly a decade—removing the policy that’s been in place since 2007 to keep interest rates low in the name of post-recession economic recovery. Yellen’s remarks echoed recent comments by other Fed officials who have sought to frame the outcome of the September meeting of the committee as a pause in the march toward higher rates, rather than a signal that the Fed’s intentions have changed. He cautioned, though, that any government shutdown caused by battles over the federal budget or a failure to raise the government’s borrowing limit in a timely way could cause the Fed to further delay a rate increase. Ultra-low inflation has resulted in part from a plunge in energy prices over the past year and a higher-valued dollar, which has made imports cheaper.

Yellen’s comments came in a 23-page speech that was accompanied by numerous charts, economic formulas and footnotes, which provided an extensive review of the Fed’s views on factors that influence inflation.

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