Federal Reserve Chair Janet Yellen says US interest rates should rise in 2015

James Nickerson
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Janet Yellen says the IMF's opinion is part of a spectrum (Source: Getty)

Janet Yellen has reiterated the case for raising interest rates later this year, saying the US economy recovery has solid underpinnings and is expected to strengthen in coming years.

In a speech, Yellen said the labour market in America had not yet fully recovered and progress in lifting inflation to the 2 per cent target had not been slower than anticipated.

Employers added 223,000 jobs in June, and the unemployment rate fell to 5.3 per cent, but wages were stagnant.

Read more: US unemployment falls to 5.3 percent as the economy comes closer to full employment

The euro area is also facing uncertainty due to the ongoing situation in Greece that remains “unresolved” and pointed to weak business investment and sluggish housing market recovery.

Nevertheless, speaking in Cleveland, Ohio, Yellen said she expected the economy to grow steadily for the rest of the year and would allow the Federal Reserve to move ahead with a rate increase, the first since late 2008.

I expect it will be appropriate at some point later this year to take the first step to raise the federal funds rate and thus begin normalising monetary policy.

But I want to emphasise that the course of the economy and inflation remains highly uncertain.

We will be watching carefully to see if there is continued improvement in labour market conditions, and we will need to be reasonably confident that inflation will move back to 2% in the next few years.

Economic data and a call from the International Monetary Fund to delay a rate rise until 2016 had dampened market expectations of a 2015 increase. Yellen said during questions that the IMF’s view was “part of the spectrum of opinion.”

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