Fed Yellen says rate to move to its longer run normal level by the end of 2018


FXStreet (Córdoba) - The FOMC continues to anticipate that the first increase in the Federal funds rate will be appropriate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2% objective over the medium term, Fed Chair Janet Yellen said in a press conference following the bank’s decision to hold fire.

Yellen reiterated that the timing of the initial increase based on its assessment of the implications of incoming information for the economic outlook. “To be clear, our decision will not hinge on any particular data release. Or on day-to-day movements in financial markets. Instead, the decision will depend on a wide range of economic and financial indicators”.

She emphasized that the specific timing of the initial increase in the target range for the Federal funds rate is far less important for the economy than the entire expected path of interest rates.

Compared with the projections made in June, many FOMC participants lowered somewhat their paths for the Federal funds mainly due to the residual effects of the Financial Crisis which are likely to continue to constrain spending for some time as well as headwinds from abroad, Yellen commented. However, she added that as the restraining of these factors on real activity dissipates further, most participants expect the Federal funds rate to move to its longer run normal level by the end of 2018.

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