Fed chief hints at first rate hike 'later this year'; further increases to be gradual

San Francisco/Washington - Federal Reserve Chair Janet Yellen signalled that the US central bank will likely start raising borrowing costs later this year, even before inflation and wages have re

turned to health, but emphasised the return to normal interest rates will be gradual.

A downturn in core inflation or wage growth could force the Fed to delay the first increase to borrowing costs since 2006, the central bank’s chief said on Friday, but policymakers should not wait for inflation to near the Fed’s 2 percent goal before tightening monetary policy. The Fed has held short-term borrowing costs near zero since December 2008.

After the first rate increase, Ms Yellen said, a further, gradual tightening in monetary policy will likely be warranted. If incoming data fails to support the Fed’s economic forecast, the path of policy will be adjusted, she said.

“With continued improvement in economic conditions, an increase in the target range for that rate may well be warranted later this year,” Ms Yellen said at a monetary policy conference at the Federal Reserve Bank of San Francisco.

Reuters