But he said full us employment should be achieved “in the near future” and inflation, while still too low for comfort, should gradually move back to a 2-percent goal.
The World Bank’s chief economist recently warned that the Fed risks triggering “panic and turmoil” in emerging markets and should hold fire until the global economy is on a more solid footing. Financial markets have been expecting an interest rate hike by the US Federal Reserve in the second half of this year for quite some time now.
Economists continue to examine the stability of the dollar, which has risen 14.8 percent against other currencies. Stocks initially edged higher before falling and ending the trading session lower. The argument is that the economy is still showing weakness so the low rate is needed to shore up a sagging economy. “You throw in some of the global turbulence and (that) supports the decision to leave rates unchanged”, said Brian Rehling, co-head of global fixed income at Wells Fargo in St. Louis. Slowing demand from China has also helped trigger a global slump in commodity costs, adding downward pressure to prices in the U.S. “The question is whether or not there will be a risk of a more abrupt slowdown than most analysts expect”, Yellen said at a press conference, according to the BBC.
“The recovery from the Great Recession has advanced sufficiently far and domestic spending has been sufficiently robust that an argument can be made for a rise in interest rates at this time”, Ms Yellen said. The Fed’s policy on interest rates has been near zero since 2008. Jeffrey Lacker, at the Richmond Reserve Bank, voted to raise rates by 0.25 per cent.
Inflation, as measured by the Fed’s preferred gauge, was 0.3pc in the 12 months through to July and has lingered below 2pc for more than three years. Now, just one of the 17 officials expected the rate to be above 0.75 percentage point by year’s end, compared with five who had projected that level in the June forecast.
For emerging markets, especially in Africa, a hike in interest rates could be grave.
“We’ve seen significant outflows of capital from those countries, pressures on their exchange rates and concerns about their performance going forward”. The financial services index turned negative during Yellen’s comments and ended down 1.3 percent while the telecommunications index dropped 1.1 percent.