Federal Reserve Chairman Janet Yellen said yesterday that she still expects economic conditions will warrant an interest rate hike “sometime later this year,” followed by a “a gradual pace” of increases.
Yellen noted that the Federal Open Market Committee will continue to monitor closely economic conditions and market responses to the Fed’s actions. “By itself, the precise timing of the first increase in our target for the federal funds rate should have only minor implications for financial conditions and the general economy,” she said. She also added that it is important to begin rate increases before too long because of the “substantial lag” with which monetary policy decisions affect economic activity and inflation.
“If the FOMC were to delay the start of the policy normalization process for too long, we would likely end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of our goals,” she explained. “Such an abrupt tightening would risk disrupting financial markets and perhaps even inadvertently push the economy into recession.”