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Fed chief Yellen says US rate rise still likely this year

Janet Yellen Image copyright Reuters

The US remains "on track" for an interest rate rise this year, Federal Reserve chief Janet Yellen has said.

The central bank head said as long as inflation was stable and the US economy was strong enough to boost jobs, the conditions would be right for a rise.

Despite expectations of a rise this month, the Fed held rates, in part due to fears about global economic growth.

Ms Yellen, speaking at the University of Massachusetts, said US economic prospects "generally appear solid".

Speaking a week after the Fed delayed that long-anticipated hike, she said she and other policymakers did not expect recent global economic and financial market developments to significantly affect the central bank's policy.

Much recent inflationary weakness is due to special and likely temporary factors, such as a strong dollar and low oil prices, she said.

"Most [policymakers] including myself, currently anticipate... an initial increase in the federal funds rate later this year, followed by a gradual pace of tightening thereafter," Ms Yellen said.

US rates have been held at practically zero since December 2008 as the economy recovers from the financial meltdown.

Financial turbulence

This month, nine members of the Fed's key policymaking committee voted to hold the federal funds rate target at 0 to 0.25%.

One committee member, Jeffrey Lacker, favoured a 0.25 percentage point rise.

The Fed's long-term policy is to keep interest rates low until employment levels improve further and the main US inflation rate approaches its 2% target.

In her speech on Thursday, Mrs Yellen cautioned that inflation may rise more slowly or rapidly than anticipated. "Should such a development occur, we would need to adjust the stance of policy in response," she said.

The World Bank recently warned developing countries to brace themselves for possible financial turbulence when the Fed eventually hikes rates.

The bank said it is possible that there would be sufficient disruption to capital flows into developing countries to harm economic growth and financial stability.

Meanwhile, towards the end of her speech, Mrs Yellen, 69, paused twice for several seconds, appearing to have lost her place in the text.

Reuters reported that the chairman of the university's economics department, Michael Ash, appeared at her side, asking: "You ok?" and offering to escort her off the stage.

The Fed said in a statement later that she "felt dehydrated at the end of the [hour] long speech under bright lights".

The statement said she was seen by emergency medical personnel and "felt fine afterward and has continued her schedule Thursday evening".

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