Business

Janet Yellen: US rate rise still likely this year

  • 15 July 2015
  • From the section Business
Janet Yellen

US interest rates are still likely to rise by the end of this year, Federal Reserve chair Janet Yellen has said.

She also said there were "favourable" prospects for more improvements in the jobs market and the economy as whole.

Her comments came in a written testimony for the US House of Representatives Financial Services Committee.

But Ms Yellen warned that continued turbulence in Greece and China posed risks to US growth.

Stock markets were little changed after her announcement, with the Dow Jones index up 0.09% and the S&P 500 up 0.16% at midday.

"It was basically an extension of her speech on Friday," said Tom Porcelli, chief US economist at RBC Capital Markets, referring to Ms Yellen's remarks in Cleveland.

IMF warning

In the written testimony, Ms Yellen said: "If the economy evolves as we expect, economic conditions likely would make it appropriate at some point this year to raise the federal funds rate target, thereby beginning to normalise the stance of monetary policy."

A rise in interest rates would be the first increase since 2006.

Earlier this month, the International Monetary Fund (IMF) warned the US against raising interest rates this year.

The IMF advised keeping rates at the current level of between 0% and 0.25% "into the first half of 2016 with a gradual rise in the federal funds rate thereafter".

Jobs

Ms Yellen admitted that labour markets still showed some "slack", suggesting that monetary policy should remain "accommodative", that is, interest rates should stay low.

She said: "Too many people are not searching for a job but would likely do so if the labour market was stronger.

"And, although there are tentative signs that wage growth has picked up, it continues to be relatively subdued, consistent with other indications of slack."

She said that a number of international problems could hold back growth including the Greek crisis.

In addition, China "continues to grapple with the challenges posed by high debt, weak property markets, and volatile financial conditions".

On the other hand, she added: "Economic growth abroad could pick up more quickly than observers generally anticipate, providing additional support for US activity."

Her comments came as new official figures were released showing that US producer prices rose more than expected in June and that industrial production has strengthened.

"Today's data support the Fed chair's message that the economy can support a rate hike," said Joel Naroff, chief economist at Naroff Economic Advisors.

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