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U.S. Fed on track to interest increase this year: Yellen

Xinhua, May 23, 2015 Adjust font size:

U.S. Federal Reserve is on track to raising its benchmark interest rate this year despite the weak performance in the first quarter.

"If the economy continues to improve as I expect, I think it will be appropriate at some point this year to take the initial step to raise the federal funds rate target and begin the process of normalizing monetary policy," said Fed Chair Janet Yellen at an event in Rhode Island on Friday.

She reiterated that the pace of normalization is likely to be gradual and it will be "several years" before the federal funds rate is back to its normal and longer run level.

The recently released Fed policy meeting minutes showed many Fed officials did not expect to raise interest rate in June as they believed the data available in June would not provide sufficient confirmation that the economic conditions warrant the liftoff.

Following the release of the minutes, the market widely sees September or even later as the most likely time for the rate increase. The Fed has kept its benchmark short-term interest rate near zero since December 2008.

In assessing the two criteria for raising rates, Yellen said despite the significant gains of the past couple of years, there is still slack in the labor market, such as some people being forced to leave job market due to lack of job opportunities.

As for inflation, the other criterion which has run below the Fed's 2-percent target for years, Yellen said, as the economy strengthens further and oil prices stabilize, she and other Fed officials believed that the consumer price inflation will move up to 2 percent. Meanwhile, other temporary factors also weighed on inflation recede, she added.

She attributed the nearly flat growth in the first quarter to transitory factors, such as severe winter and labor disputes in west coast, but held a cautious view about the economic outlook.

Yellen said the economic growth would be moderate over the remainder of the year and beyond as headwinds facing the economy, including slow housing sector recovery, weak investment in energy sector, and slow global growth, have not fully abated.

Most Fed officials expected the economy to grow about 2.5 percent per year over the next couple of years, Yellen said. Endite