The Federal Reserve is on track to raise interest rates this year despite increasing overseas risks, the chair of the Federal Reserve said in a statement.
In her written semi-annual statement to Congress, Janet Yellen, said “economic conditions likely would make it appropriate at some point this year to raise the federal funds target rate”. She added factors that had been holding inflation back are likely to subside.
US growth faltered in the first quarter of this year. However, the US economy has seen stronger indicators in recent months, intensifying expectations that the Fed will pull the trigger on a rise as soon as September.
However, Ms Yellen acknowledged increasing overseas risks. She warned the situation in Greece is “difficult” and China “continues to grapple with the challenges posed by high debt, weak property markets, and volatile financial conditions”.
However, Ms Yellen said overseas growth could improve quicker than people expect.
She added the expected path of interest rates, not when the first hike occurs, is what matter most for the economy. She added that hikes are likely to happen at a “gradual” pace.
However, Fed officials were split on what this pace means at the June Federal Open Markets Committe meeting. At the meeting, officials were divided on whether it would be one, two or three interest rate hikes this year.
However, Paul Ashworth, chief US economist at Capital Markets, believes a pick-up in the pace of wage growth and core inflation, “will prompt the Fed into a much more aggressive series of rate hikes next year, with the fed funds rate finishing 2016 at close to 3 per cent”.
