US Federal Reserve chairman Janet Yellen opened up the possibility of interest rate rises this year should the country’s recovery stay on course.
Speaking before a Senate committee yesterday, Ms Yellen said any change in language from now on “should be understood as reflecting the committee’s judgment that conditions have improved to the point where it will soon be the case that a change in the target range could be warranted at any meeting”.
The comments come as unemployment in the US has fallen to 5.7 per cent down from more than 10 per cent, a factor which has always been deemed an important factor of when to raise rates.
She said the central bank’s Federal Open Markets Committee would start to alter monetary policy when it was “reasonably confident” inflation would move back towards 2 per cent, which is the committee’s target.
Fixed income boutique TwentyFour Asset Management said Ms Yellen’s language was “very different” but welcomed the change.
“Very simply, the good news is that the Fed has dealt with the spectre of rising rates in a meticulous fashion, and has somehow done so without destabilising the market,” partner Mark Holman said.
“This time last year, we would have been saying that rising rates were one of the big risks to markets, and we expected this to be the prime source of volatility.
“When [former chairman Ben] Bernanke first introduced the concept back in May 2013, the rates, credit and equity markets fell together for two months. While we suspect that yesterday’s news is not good for US Treasury bond prices, we do think that equities and credit should take this positive news for what it really is.”