Federal Reserve chair Janet Yellen indicated in a speech to the City Club of Cleveland on Friday that she still expects to raise interest rates this year. However, she emphasized that the pace of increases would be gradual and dependent upon continued improvement in the economy. She said, ‘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. 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. We will be watching carefully to see if there is continued improvement in labor market conditions, and we will need to be reasonably confident that inflation will move back to 2% in the next few years.’ Yellen noted there are a couple of factors that could restrain growth. She said businesses are holding large amounts of cash on their balance sheets, suggesting risk aversion, and activity in the housing sector seems likely to improve only gradually. Some market participants expect the Federal Reserve will raise rates as early as September.
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