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Yellen reiterates Fed plans for 2015 rate hike

Yellen reiterates Fed plans for 2015 rate hike

Federal Reserve chair Janet Yellen reiterated that interest rate hikes are still on track for later in the year amid signs of wage gains and stronger job market but stresses that the pace of rate increases will be gradual. “Based on my outlook, I expect that it will be appropriate at some point later this year to take the first step to raise the federal funds rate and thus begin normalizing monetary policy,” Yellen said in a prepared speech delivered in Cleveland this afternoon.janet-yellen-hearing2

But Yellen assured investors that the Fed would not move aggressively and could delay the hikes if financial conditions weaken appreciably. “But I want to emphasize that the course of the economy and inflation remains highly uncertain, and unanticipated developments could delay or accelerate this first step,” she said. In the speech, Yellen focused mainly on domestic U.S. economic developments and did not mention the market turbulence in China and just made a short reference to the Greek debt drama that has roiled markets in recent weeks. On Greece, all Yellen said in her speech was that “the situation in Greece remains unresolved.”

On Greece, the Fed chair “largely ignored the issue altogether,” said Paul Ashworth, chief U.S. economist at Capital Economics. Wall Street has been debating whether the recent volatility in global markets could prove worrisome to the Fed, and perhaps give them reason to postpone rate hikes until a later day, such as later this year or even push the first hike out to 2016. But comments by Yellen in the question-and-answer session suggests the U.S. central bank is more focused on economic data at home, than problems abroad, when divining the right time to raise rates for the first time in almost a decade.

Yellen stressed that the “headwinds that have been holding back the U.S. recovery are receding.” “Things are getting better,” Yellen said, adding that if that trend continues she thinks a rate hike later this year is appropriate. She stressed that if the U.S. economic data continues to improve, which she is forecasting, then that is the “most important factor” in determining the best time to hike rates.