Giving much wider scope of speculation on possible interest rate hike in next October meeting, the US Federal Reserve Chair Janet Yellen has indicated that there would be interest rate hike this year. Yellen further opined that it's necessary to increase short-term rates in a gradual manner as the improvement in labor market further continues and inflation rate reaches to the government target of two percent. The US Central Bank has been sending feelers about the possible rate hike this year for some time. The job market growth is the major factor that puts the US Fed in a comfortable position to take a decision on interest rate hike.
The US Federal Reserve didn't hike its benchmark Federal funds rate, known as short-term interest rate since December 2008 to support the economy. The interest rate has been at a near-zero level all these years.
Of late, Yellen has been arguing the issue of raising rates. She also clarified that the latest decision to keep the interest rate at the current level doesn't mean an interminable delay in raising rate. Yellen also made it clear that the slackness in the US economy is reduced to a certain extent where inflation pressure can start building up in the days to come.
Agreeing that financial markets tumbled by continued uncertainty on interest rate hike. The US FederalReserve in its last meeting held on the third week of September opted for holding rate without any change.
The US Fed considered all the facets of the risk of raising rate amid uncertainty in the global financial markets and Chinese economy slowdown. The market analysts now give 40 percent weight age on the chances of raising interest rate by the US Fed.
Before the jobs data also, recently Yellen was saying that she too expects the rate hike, but the weakness in the labor markets makes the situation not ripe for the decision. She also forecasted that US economy would grow steadily in the last quarter also.
She holds the view that it would be appropriate to hike interest rate sometime later part of the year as a first step towards normalizing monetary policy. However, the uncertainty in the economy and inflation conditions should ease off before taking any major decision.
Yellen made a 40-page speech and presentation on a large screen at the University of Massachusetts in Amherst on Thursday night. Addressing to over 1,800 students and professors, Yellen lengthy and elaborative speech included 40 academic citations, 35 footnotes, and nine graphs.
After the 52-minute speech, the 69-year-old Yellen exhausted and paused for a moment as she started coughing. She was stumbling for words as she was feeling dehydrated. After an immediate medical aid by emergency medical doctors, she was able to resume her schedule normally.
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