Fed Chief Warns Interest Rates Will Rise Again This Year

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Interest rates will rise again in the USA this year, Federal Reserve chair Janet Yellen has hinted.

She was giving advance warning to investors that a rate hike is on the way in a bid to thwart stock market jitters.

Last year, speculation about a US interest rate increase saw stock markets around the world tumble.

In a statement, Yellen agreed that recent US economic data was disappointing but indicated the Fed felt positive economic forces outweighed the negative.

She did not say when the rate rise would come – only that rates would rise before the year-end.

Yellen outlined the Fed’s thinking by explaining despite poor employment data, the US economy was expected to grow at a moderate rate.

Positive economic data

“This will lead to more jobs and although only 38,000 jobs were added in May, we do not expect this to mark a trend,” she said.

“If incoming data are consistent with labour market conditions strengthening and inflation making progress toward our 2% objective, as I expect, further gradual increases in the federal funds rate are likely to be appropriate.”

Yellen also explained that the Fed does not make decisions based on a single good or bad economic report, but looks at a broader range of data.

“Overall, the economy is encouraging and other jobs data has been more positive,” she said.

The last US interest rate rise was in December –  doubling from 0.25% to 0.5%.

The official rate was set at 0.25% in December 2008.

Brexit threat

Unlike many other economies, inflation in the US is hovering around the target rate of 2%.

Hiking the rate is expected to strengthen the US dollar further, attracting investment but making exports more expensive.

Meanwhile, Yellen dived into the Brexit debate by warning a vote for the UK to leave the European Union could have economic repercussions for the US and other economies outside Europe.

She also stated A Brexit vote to leave could impact on US interest rates, which effectively rules out a Fed rate rise in June as the rate setting committee meets more than a week before the June 23 referendum.

Another Fed board member, Lael Brainard, has also warned a Brexit could badly affect the US economy.

He pointed out that international markets are closely linked and any reaction in Europe could spill over into Wall Street.