Case stronger now for interest rate hike: US Federal Reserve

Jackson Hole (US), Aug 26 (IANS) US Federal Reserve chairperson Janet Yellen on Friday made the case for raising central bank interest rates on the basis of trends in recent months showing improvements in the labour market and greater expectations of moderate economic growth.

“I believe the case for an increase in the federal funds rate has strengthened in recent months” Yellen said addressing an international gathering of central bankers here.

“Looking ahead, the FOMC (Federal Open Market Committee) expects moderate growth in real gross domestic product, additional strengthening in the labour market, and inflation rising to 2 per cent over the next few years,” she said.

“Based on this economic outlook, the FOMC continues to anticipate that gradual increases in the federal funds rate will be appropriate over time to achieve and sustain employment and inflation near our statutory objectives,” she added.

The US Federal Reserve has its monetary policy review meetings scheduled in September, November and December, while Yellen’s speech on Friday increased expectations of a rate rate within the current calendar year.

She, however, also said that future rate increases should be “gradual.”

Making its first hike in nearly a decade, the US Federal Reserve raised rates last December, but has avoided further increases so far this year owing to the continuing global economic slowdown and volatility in major financial markets.

Yellen, on Friday, did not lay out a clear roadmap for raising rates at a conference that world markets were keenly watching for clues about the timing of the next US rate announcement.

This year’s fixture at Jackson Hole has the agenda of designing new monetary policy frameworks, with central bankers keen to find ways to stimulate economies even after they have cut rates to near zero levels.

“New policy tools, which helped the Federal Reserve respond to the financial crisis and Great Recession, are likely to remain useful in dealing with future downturns,” Yellen said.

“Additional tools may be needed. But even if average interest rates remain lower than in the past, I believe that monetary policy will, under most conditions, be able to respond effectively,” she added.



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