US set for summer rate rise as Yellen says move is 'appropriate'
Published 28/05/2016 | 02:30
Federal Reserve Chair Janet Yellen said the ongoing improvement in the US economy will warrant another interest rate increase "in the coming months", stopping short of giving an explicit hint that the central bank would act in June.
"It's appropriate - and I've said this in the past - for the Fed to gradually and cautiously increase our overnight interest rate over time," Ms Yellen said yesterday at Harvard University in Massachusetts. "Probably in the coming months such a move would be appropriate."
Ms Yellen will host her colleagues on the Federal Open Market Committee (FOMC) in Washington on June 14-15, when they will contemplate a second interest-rate rise following seven years of near-zero borrowing costs that ended with a rise in December.
A series of speeches by Fed officials and the release of the minutes to their April policy meeting have heightened investor expectations for another tightening move in June or July.
The economy is continuing to improve," she said in a discussion with Harvard economics professor Gregory Mankiw. She said she expects "inflation will move up over the next couple of years to our 2pc objective", provided headwinds holding down price pressures, including energy prices and a stronger dollar, stabilise alongside an improving labour market.
Several regional Fed presidents, ranging from Boston Fed President Eric Rosengren to San Francisco's John Williams, have in recent weeks urged financial market participants to take more seriously the chances of a rate hike in the next two months, pointing to continued signs of steady if unspectacular growth in the US economy and the waning of risks posed by global economic and financial conditions.
"It sounds like the committee is close to a rate hike, assuming the data holds up, but that no decisions have been made about the precise timing," Laura Rosner, a senior US economist at BNP Paribas in New York, said. "It will be a collective decision." Market sentiment over the June meeting has been shifted by FOMC member comments and by the April meeting minutes.
Those records, released on May 18, showed a majority on the committee favoured a June rate increase if the economy continued to improve.
Odds of a June rate hike implied by pricing in federal funds futures contracts were 32pc after Ms Yellen's remarks compared to 28pc earlier yesterday and about 4pc two weeks ago. (Bloomberg)