Fed Chief Warns Interest Rates Will Rise Again This Year

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.

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