Janet Yellen Says Interest Rates Will Likely Rise By End Of Year

Janet Yellen Interest Rates

Federal Reserve Chairwoman Janet Yellen said Thursday that she still expects a long-awaited interest rate hike by the end of 2015.

Speaking at the University of Massachusetts at Amherst, Yellen delivered a lengthy address on inflation and monetary policy. The Fed had declined to raise rates when officials met last week in part because of fears related to persistently low inflation rates, far below the target of 2%.

Toward the end of her speech, Yellen had some trouble concluding as she paused and stumbled at times. The Fed later attributed that to dehydration “at the end of a long speech under bright lights,” adding in a statement that “[s]he felt fine afterward and has continued with her schedule Thursday evening.”

In her presentation, Yellen argued that inflationary pressures are still present in the economy but are being obstructed by other factors, including low oil prices and costs of imports.

“It will likely be appropriate to raise the target range of the federal-funds rate sometime later this year and to continue boosting short-term rates at a gradual pace thereafter as the labor market improves further and inflation moves back to our 2% objective,” Yellen said.

The Wall Street Journal reported that many central banks around the world have followed the Fed’s lead this week, either lowering or holding interest rates, with a J.P. Morgan economist, David Hensley, telling the newspaper that “it is very hard for most other central banks to operate independently of the Fed, especially in emerging markets.”

Yellen pointed to “slack remain[ing] in labor markets” as a key factor, along with energy prices, in holding inflation well below the Fed’s 2% target. “But,” she added, “I expect that inflation will return to 2% over the next few years as the temporary factors weighing on inflation wane.”

Yellen also reiterated her belief that once the first rate hike does happen, “the more prudent strategy is to begin tightening in a timely fashion and at a gradual pace.”

Written by Gene Giannotta

Gene Giannotta is a writer based in Washington, D.C. He reports on economic policy, finance and business news.