Madison Headlines

Yellen says Fed on track for first rate hike this year

Yellen says Fed on track for first rate hike this year

Federal Reserve Chair Janet Yellen said Friday the central bank remains on track to raise interest rates this year but will do so gradually, adding that she expects the economy to rebound after a surprisingly weak first quarter. Although her remarks reiterate those she and other Fed officials have made the past few months, financial markets recently have projected the Fed would delay the first hike in its benchmark interest rate since 2006, possibly even until early next year.janet-yellen-hearing2

“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,” Yellen said in a speech at the Providence Chamber of Commerce in Rhode Island. She added, however, that after the first hike, “I anticipate that the pace (of subsequent increases) is likely to be gradual. The various headwinds that are still restraining the economy … will likely take some time to fully abate, and the pace of that improvement is highly uncertain.”

Yellen said that “it will be several years” before the Fed’s benchmark rate is back to normal — which is close to 4% in an economy that’s performing well. Many economists continue to expect the Fed to hoist the fed funds rate in September, and that’s consistent with Fed policymakers’ median forecast two months ago. But recent weak reports on exports and retail sales have prompted some investors and economists to predict a delay. The government next week is expected to report that the economy contracted by about 1% in the first quarter, revising down its previous estimate of sluggish 0.2% growth.

And many economists have lowered their estimates of second-quarter growth to just over 2%. Some are concerned about the lingering effects of a strong dollar, which is pummeling U.S. exports, and an ongoing pullback in energy investment because of the drop in oil prices. But Yellen said the first-quarter slowdown “was largely the result of a variety of transitory factors that occurred at the same time,” including a brutal winter and a labor dispute at West Coast ports that disrupted shipments.

She added that some of the weakness “may just be statistical noise.” Some economists recently have suggested the Commerce Department’s seasonal adjustments to economic growth estimates could be flawed. “I therefore expect the economic data to strengthen,” she said. “The U.S. economy seems well-positioned for continued growth.”

Yellen noted the labor market and consumer confidence have been improving. But she added the near-normal 5.4% unemployment doesn’t reflect the large numbers of discouraged workers who have stopped looking for jobs and part-time employees who prefer full-time positions. Noting the labor market is “approaching full strength,” she said, “in my judgement we are not there yet.” The Fed, she added, can still do more to fuel growth.