Yellen Says Interest Rate Increase Likely in 2015

Yellen Janet, Federal Reserve Chair has reaffirmed analysts’ expectation of a possible rate hike in the second half of the year.

“Prospects are good for further improvement in the labour market and the economy, the central bank is on track for a possible interest rate increase in 2015”, she said.

According to Yellen Janet, “if the economy evolves as we expect, economic conditions would make it appropriate at some point to raise the federal funds rate target, Fed officials expect growth to strengthen over the remainder of this year and unemployment rate to gradually decline”.

The Fed Chair emphasized that the timing of the first rate increase in almost 10 years is less significant compared to the subsequent path of increases, which would be gradual. She said the “Fed forecasts for higher rates this year are only projections under certain circumstances and not statements of intent to raise rates at any particular time”.

Yellen at testimony before congress, the House Financial Services Committee in Washington, repeated that Fed will tighten policy once it sees more improvement in the labour market and reasonable confidence that inflation will be held back towards 2 percent in the medium term.

Fed testimony came amid signs the economy is gaining momentum after a first-quarter drawback. According to a Bloomberg survey of 75 economists, GDP is expected to increase by 2.7 percent in the second quarter while the labour market continues to show reasonable growth and has generated more than 2.9 million jobs in the past one year. The unemployment rate dropped in June to 5.3 percent, the lowest in more than 7 years.