Federal Reserve Chair Janet Yellen still shows the positivity in her speach in front of the Fed that she still expects to raise interest rates this year if the economy meets her forecasts, with a gradual pace of tightening to follow.
While the labor market is nearing full strength, “we are not there yet,” she said Friday in a speech in Providence, Rhode Island.
“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,” she said.
Even after the first rate increase since 2006, “I anticipate that the pace of normalization is likely to be gradual,” Yellen, 68, said.
Echoing the Fed’s April statement, Yellen said she expects the economy to return to a “moderate” pace of growth after a disappointing first quarter as headwinds including a cooling global economy gradually abate.
U.S. stocks pared losses following Yellen’s remarks, with the Standard & Poor’s 500 Index declining less than 0.1 percent to 2,130.49 as of 1:16 p.m. in New York. The yield on the benchmark 10-year Treasury was little changed at 2.20 percent.
Yellen repeated that policy isn’t on a pre-set course and the Fed may tighten more quickly if the economy performs better than expected or raise rates at a slower pace if it disappoints. Delaying the first rate increase until employment and inflation return to the Fed’s objectives “would risk overheating the economy,” Yellen said.
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