Fed rate hike due this year

The US Federal Reserve Chair Janet Yellen confirmed on Wednesday that a rate hike is likely to happen within this year, after more than half a decade of near zero interest rates.

“If the economy evolves as we expect, economic conditions would make it appropriate at some point this year to raise the federal funds target”, she said in her remarks to Congress on the Fed’s mid-year economic outlook.

Many analysts expect the first rate hike in September, but few think it will be more than a marginal increase. Yellen has also warned that the first rate hike should not be given too much importance - interest rates are likely to remain low “for quite some time after the increase.”

The announcement of a rate hike came despite economic turbulence abroad, including the Greek debt crisis and uncertainty on Chinese stock markets. That the central bank is forging ahead with a rate hike signals economic resilience and the likelihood that the US will be well-insulated from external shocks.

Raising rates would “signal how much progress the economy has made in healing from the trauma of the financial crisis,” Yellen said.

Yellen’s outlook is based on the central bank’s expectation that the labor market keeps improving and inflation will keep moving towards the Fed’s 2 percent target for annual price gains.

jd/cjc (AP, dpa, Reuters)