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US Fed chair Yellen reiterates gradual rate hike path

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Washington: US Federal Reserve Chair Janet Yellen has said it is appropriate for the central bank to continue gradual interest rate hikes on the expectation that the economy and job market would remain strong.

“We continue to expect that gradual increases in the federal funds rate will be appropriate to sustain a healthy labor market and stabilize inflation around the FOMC’s (Federal Open Market Committee) 2 per cent objective,” said Yellen on Wednesday in remarks before the US Congress Joint Economic Committee, Xinhua reported.

Yellen gave an upbeat assessment about the US economy. “The economic expansion is increasingly broad based across sectors as well as across much of the global economy,” said Yellen.

Job market gains remained strong, with unemployment rate dropping to nearly 17-year low of 4.1 per cent. There are 17 million more Americans employed now than eight years ago, said Yellen.

In regard to this year’s low inflation readings, Yellen reiterated that the low inflation might reflect transitory factors and expected inflation will move up to 2 per cent target over the medium term.

However, she also pointed out that the low inflation readings could reflect something more persistent.

Fed officials are now dividing over inflation outlook, as the latest Fed policy minutes showed.

Some officials argued that the central bank should more gradually tighten monetary policy in view of the persistent low inflation, while some cautioned that waiting too long to raise interest rates could result in labor market overheating which could increase upside risks to inflation.

In her remarks, Yellen downplayed risks in financial system despite the high valuations of assets prices.

“Although asset valuations are high by historical standards, overall vulnerabilities in the financial sector appear moderate, as the banking system is well capitalized and broad measures of leverage and credit growth remain contained,” said Yellen.

Yellen’s remarks didn’t address the central bank’s moves in the short term. Market watchers widely believed that her remarks didn’t sway market expectation that there will be one more rate hike in December.

Fed Governor Jerome Powell, the nominee for the next Fed chair, signalled on Tuesday that he would likely support the central bank to raise interest rate again in December.

The Fed will hold this year’s last policy meeting on December 12-13.

IANS

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