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Thursday 21 August 2014

Janet Yellen: US Federal Reserve may raise rates as soon as next spring

Comments sent stock and bond markets tumbling

Published 20/03/2014 | 07:39

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Fed chief Janet Yellen testifies before the Senate Banking Housing and Urban Affairs Committee on Capitol Hill in Washington
Fed chief Janet Yellen testifies before the Senate Banking Housing and Urban Affairs Committee on Capitol Hill in Washington

The US Federal Reserve will probably end its massive bond-buying program this fall, and could start raising interest rates around six months later, Fed Chair Janet Yellen said, in a comment which sent stocks and bonds tumbling.

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Yellen's remarks at her first news conference as the head of the central bank pointed to a more aggressive path toward higher interest rates than many had anticipated, and bets in financial markets shifted accordingly.

The comments came after a two-day meeting in which Fed officials made another reduction in their bond-buying stimulus and decided to jettison a set of guideposts they were using to help the public anticipate when they would finally raise rates.

The Fed said the change in its rate hike guidance did not mark a shift in its intentions and that it would wait a "considerable time" after shuttering its asset purchase program before pushing borrowing costs higher.

Yellen, who had fielded numerous questions without a hitch, hesitated when asked what the Fed meant by "considerable."

"I -- I, you know, this is the kind of term it's hard to define, but, you know, it probably means something on the order of around six months or that type of thing. But, you know, it depends -- what the statement is saying is it depends what conditions are like."

Several analysts wondered whether her answer was an unintended slip, given the deliberately vague language of the Fed's statement.

Either way, the reaction in financial markets was swift and sharp. Prices for U.S. stocks and government bonds added to earlier losses triggered by fresh Fed forecasts that showed policymakers are inclined to raise rates a bit more aggressively than they had been just a few months ago.

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