Yellen Expects First Rate Hike by Year’s End

Citing improved labor market conditions, growing consumer spending and reduced “drag” from government fiscal policies, Federal Reserve Chairman Janet Yellen said today that she expects it will be appropriate to begin the process of raising the federal funds rate “later this year.”

“I want to emphasize that the course of the economy and inflation remains highly uncertain, and unanticipated developments could delay or accelerate this first step,” she added. “We will be watching carefully to see if there is continued improvement in labor market conditions, and we will need to be reasonably confident that inflation will move back to 2 percent in the next few years.”

Yellen also emphasized that the rate hikes would be gradual due to continuing factors restraining economic growth — such as international economic conditions, soft residential construction and low business investment — and that even as rates rise, Fed policy will remain highly accommodative.