Chairwoman Expects Fed to Raise Key Interest Rate This Year

Chairwoman Expects Fed to Raise Key Interest Rate This Year

Washington — Federal Reserve Chairwoman Janet L. Yellen said Friday she expected the central bank to raise its benchmark short-term interest rate this year if the economy continues to slowly improve.

It was her clearest signal yet of when the Fed would increase the so-called federal funds rate for the first time since 2006.

The Fed has held the rate near 0 percent since late 2008 in an attempt to boost economic growth and hiring. With the economy improving, Fed policymakers have indicated they could start raising the rate as soon as June.

But some recent weak economic data have led many analysts to predict the Fed would not raise the rate until at least September — and maybe not until next year.

And minutes of the Fed’s most recent meeting, in April, showed many policymakers “thought it unlikely” that economic data available by June would be strong enough to warrant a rate hike.

In a speech Friday in Providence, R.I., Yellen said that an economic slowdown in the first three months of the year appeared to be “largely the result of a variety of transitory factors,” including unusually bad winter weather and a dispute at West Coast ports.

Growth should pick up to a moderate pace as the year progresses, she said.

“If the economy continues to improve as I expect, I think it will be appropriate at some point this year to take the initial step to raise the federal funds rate target and begin the process of normalizing monetary policy,” Yellen said.

But she said the labor market will need to continue improving and inflation will have to show signs of picking up.

The Fed wants inflation to increase by 2 percent annually. But a Labor Department report on Friday said the consumer price index declined 0.2 percent in the year ended April 30.

Recent low inflation has been caused largely by the sharp decline in oil prices that began last year. So-called core inflation, which excludes volatile energy and food prices, increased 0.3 percent in April, the largest rise since January 2013.

For the year ended April 30, core inflation was 1.8 percent.

“Inflation has been held down by the continued economic weakness during the slow recovery and, more recently, by lower prices of imported goods as well as the fall in oil prices,” Yellen said.

But with oil prices no longer declining, Yellen said she and her colleagues on the policy-making Federal Open Market Committee believe that inflation “will move up to 2 percent as the economy strengthens further and as other temporary factors weighing on inflation recede.”

Author: Jim Puzzanghera Los Angeles Times

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