US Federal Reserve chairman Janet Yellen has revealed that interest rates in the country could begin to increase as early as 2015 – news that sent Wall Street sliding.
The message was delivered during her first public outing since starting her post as chairman.
She stated interest rates may start to increase around six months after the US Government’s quantitative easing (QE) programme comes ends.
Yellen also highlighted that the Fed plans to scale back QE by an addition USD 10 billion per month – bringing the total down to USD 55 billion from USD 85 billion last year.
Earlier, the Federal Open Markets Committee had stated that it would need more than positive unemployment figures to begin hiking borrowing costs.
This would specifically include inflation expectations.
Yellen’s comments undid much of this sentiment, and when asked when the rate-setting committee would decide to increase the interest rates she stated that: “The language that we use in the statement is ‘considerable period.’ This is the kind of term it’s hard to define but probably means something on the order of around six months.”
This caused the Dow Jones Industrial Average to fall dramatically, ending the session at 16,222 – a drop of 114 points.
Experts believe that the sea change in the Federal Reserve’s guidance may cause interest rates to rise sooner than previously anticipated.
It the current pace of QE tapering it is suggested rates would begin rising around April next year – approximately half a year after Yellen’s prediction.
However, Yellen stated her prediction was not set in stone, and that the interest rate increase would depend on “what conditions are like … The new guidance does not indicate any change in the policy intentions of the FOMC, but instead reflects changes in the conditions we face.”
Of these concerns, she mentioned how the labour market progress has been quicker than anticipated, and the fact that if America faces a substantial shortfall in inflation it would be “a very good reason to hold the funds rate at its present range for longer.”