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Federal Reserve Chair Janet Yellen on Friday said she expected the central bank to raise rates this year as the US economy was on course to bounce back from a sluggish first quarter and as headwinds at home and abroad begin to wane.
Yellen spoke amid growing concern at the Fed about possible market volatility once it begins to raise rates, and a desire to begin coaxing sceptical investors towards accepting the inevitable: ending about a roughly six-year stretch of near-zero interest rates.
Yellen, in prepared remarks for a speech in Rhode Island, said she expected economic data to strengthen, and noted that some of the weakness at the start of the year may be due to “statistical noise.”
While saying that the outlook for the economy is always highly uncertain and citing persistently low inflation, Yellen said delaying a monetary policy tightening until employment and inflation hit the central bank’s targets risked overheating the economy.
“For this reason, 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 normalising monetary policy, Yellen said in a speech at the Providence Chamber of Commerce.Yellen repeated a view she shared in March that once the Fed begins to raise rates, the process is likely to be gradual. She also said the timing of a rate hike will depend on incoming economic data.
“We have no intention of embarking on a pre-set course of increases in the federal funds rate after the initial increase,” she said in her remarks.
