Yellen: Conditions jelling for rate hike

Federal Reserve Chair Janet Yellen smiles as she is asked a question regarding the economy and rates during a Radcliffe Day event at Harvard University in Cambridge, Mass., Friday, May 27, 2016.
Federal Reserve Chair Janet Yellen smiles as she is asked a question regarding the economy and rates during a Radcliffe Day event at Harvard University in Cambridge, Mass., Friday, May 27, 2016.

CAMBRIDGE, Mass. -- Federal Reserve Chairman Janet Yellen said Friday that an interest rate increase would be appropriate in the coming months if the economy keeps improving.

While economic growth was relatively weak at the end of last year and beginning of this year, it appears to be picking up now based on recent data, Yellen said during a discussion at Harvard University.

"It's appropriate -- and I've said this in the past -- for the Fed to gradually and cautiously increase our overnight interest rate over time," Yellen said Friday during remarks at Harvard University in Cambridge, Mass. "Probably in the coming months such a move would be appropriate."

Anticipation of a rate increase at either the next meeting in June or in July have been rising since the Fed last week released the minutes of its discussions at its April meeting. The minutes showed that Fed officials believed the strengthening economy might warrant a rate change in June.

The minutes caught investors by surprise because they had come to believe the Fed would not move that quickly.

Many private economists still believe a June rate change isn't very likely. The gathering will take place only a week before British voters decide whether to support a move to leave the European Union. The Fed may be reluctant to raise rates in advance of the British vote. These analysts believe a rate increase at the July 26-27 meeting is more likely.

"It sounds like the committee is close to a rate hike, assuming the data hold up, but that no decisions have been made about the precise timing," Laura Rosner, a senior U.S. economist at BNP Paribas in New York, said in an email. "It will be a collective decision."

Yellen's comments came during an appearance at Harvard, where she was honored with the Radcliffe Medal. She was interviewed by Harvard economics professor Gregory Mankiw.

"The economy is continuing to improve," Yellen said. She added that she expects "inflation will move up over the next couple of years to our 2 percent objective," provided headwinds holding down price pressures, including energy prices and a stronger dollar, stabilize alongside an improving labor market.

Yellen's appearance had been widely anticipated because it was the first time she had spoken publicly since April 8 in New York.

The Fed raised its key policy rate for the first time in nearly a decade in December, pushing the rate from a record low near zero to a range of 0.25 percent to 0.5 percent.

But after increased global weakness and financial market turmoil in January and February, the Fed has kept rates unchanged so far this year. And the Fed indicated in March that it was trimming its estimate of possible rate hikes this year from four to just two.

Information for this article was contributed by Martin Crutsinger and Steve LeBlanc of The Associated Press and Christopher Condon of Bloomberg News.

Business on 05/28/2016

Upcoming Events