"Yellen says rate increase may be warranted later this year" by Martin Crutsinger, Associated Press March 28, 2015
WASHINGTON — Federal Reserve chair Janet Yellen said Friday that continued improvement in the US economy means an increase in the Fed’s key interest rate could come later this year.
But Yellen stressed that any rate increases would likely be very gradual.
The Fed has kept its benchmark rate at a record low near zero for more than six years. Yellen said in a speech in San Francisco that the time to start raising the rate could occur ‘‘sometime this year,’’ though she said the time hasn’t yet arrived.
She said that when the Fed does start raising rates, policy makers expect the increases to be ‘‘rather gradual’’ for the next few years. Yellen said Japan’s experience over the past 20 years argues for a cautious approach. Over that time, Japan has struggled with anemic economic growth as well as deflation — a period of falling prices that’s been hard for its policymakers to overcome.
Yellen said a key reason for a gradual approach to higher rates is that the danger of raising them too fast is greater than the risk of doing so too slowly. If the Fed were to tighten loan rates too quickly, the economy could stall and, with rates still relatively low, the Fed would have little room to cut them.
But she did say that taking a ‘‘gradualist approach’’ to raising rates carries its own risks. One is the possibility that it might undermine the Fed’s credibility as an inflation fighter and could risk instability in financial markets by allowing an excessive buildup in borrowing.
‘‘At this point, the evidence indicates that such vulnerabilities do not pose a significant threat, but the [Fed] is carefully monitoring developments in this area,’’ she said.
Yellen’s comments offered an elaboration on signals the Fed sent after its latest policy meeting last week....
You can see the minutes of the latest bit of Fedspeak if you want.
On Monday, Fed vice chairman Stanley Fischer said in a speech in New York that he expected the central bank to start raising rates sometime this year....
Related: Fed Up With the Boston Globe
You can do some Fisching around to see why.
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Also see:
Low interest rates actually hurt the middle class
Low borrowing costs keep recovery in gear
It's a fal$e debate because the real problem is the Fed itself and its existence as an institution.
Besides, whatever they do rates will stay low for a while.
UPDATE: How a possible rise in Fed interest rates could affect consumers
