Janet Yellen in a speech in San Francisco said, Federal Open Market Committee is now “giving serious consideration to beginning to reduce later this year some of the extraordinary monetary policy accommodation currently in place.”
She said that they are taking gradual approach to check whether the economy is stronger enough to weather higher rates.
Earlier this month, the fed’s policy has opened the door to federal fund rate hike as early as midyear.
But the economy is still weak and the consumer spending, manufacturing and housing has dropped any chance of increase of the zero level rates which haven’t been increased form past six years.
Still they say that recovery from the Great Recession that ended in 2009 is on track and can bear the hike in the rate.
Ms Yellen said, “With continued improvement in economic conditions, an increase in the target range for that rate may well be warranted later this year.”
The low rate has reduced slack in the labor market over past two years and appears that it will be leading to further sustainable gains.
She added, “A modest increase in the federal funds rate would be highly unlikely to halt this progress, although such an increase might slow its pace somewhat.”
Michael Gapen, Barclays analyst said, “We view Yellen’s remarks as attempting to shift the debate from ‘when’ to ‘how fast’ and communicating a gradual tightening cycle.”
Her remarks came after the US economy growth rate in the fourth quarter was 2.2.percent which was slower than the previous quarter.
Scott Hoyt of Moody’s Analytics said, “The first quarter looks even softer, in part due to adverse weather, but abstracting from the vagaries of the quarterly data, real growth appears to be trending close to a respectable three percent pace.”