“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 and probably in the coming months, such a move would be appropriate”, Yellen said.
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Although Yellen expressed caution about too steep a rise in U.S. interest rates, she sounded more confident than she has in the past about economic growth and the prospect of inflation edging higher toward the Fed’s 2 per cent target.
“The economy is continuing to improve.growth looks to be picking up”, Yellen said in remarks in Boston.
The Commerce Department said the US economy was a bit stronger in the first quarter than it initially believed.
As the Dollar soared to multi-month highs, precious metals declined.
The Fed has moved forcefully in recent weeks to convince investors that it could raise rates as soon as its next meeting, June 14 and 15.
Since December, when the benchmark federal funds short-term rate was raised for the first time in more than nine years, to 0.25-0.50 percent, the FOMC has demurred from more hikes as the economy went through a rough patch. Industrial profits rose 4.2 percent last month compared with the year-ago period, slower than the 11.1 percent increase in March, official data showed.
Yellen’s is the most important voice in a chorus of policymakers recently suggesting that the United States economy has improved enough to warrant tighter borrowing costs, with a growing number of investors now expecting a hike in June or July.
The dollar gained earlier on Friday after US economic growth was revised upward for the first quarter.
“In a short space of time we’ve seen the Fed change their stance from postponing hikes to all of a sudden putting it on the front burner”, said Sheldon Slabbert, sales trader at CMC Markets. German annual inflation clambered out of negative territory in May but only as far as zero, showing price pressures in Europe’s largest economy remain weak despite the European Central Bank’s ultra-loose monetary policy.
On Friday, Yellen said those factors “seem like they are roughly stabilising at this point and my own expectation is that. inflation will move back up over the next couple of years to our 2 per cent objective”. “We should be cautious about raising rates too steeply”, she added.
“The central issue for a lot of markets, including commodities, is now the timing of that next rate hike”, Ric Spooner, chief market strategist for CMC Markets Asia Pacific Pty, said by phone from Sydney. Yellen was introduced by former Fed chair Ben Bernanke, to whom she said Americans owe “an enormous debt of gratitude” for guiding the economy through the 2007-2009 financial crisis.
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Yellen’s words echo recent comments made by other Fed officials the past week that have talked about a rate hike happening sometime this summer.
