The Fed Continues To Promise Gradual Rate Hikes

• The Wall Street Journal – Yellen Says Gradual Rate Increases Should Help Sustain Economy’s Growth
  Fed chairwoman says labor-market strength should lead to higher inflation next year

  Federal Reserve Chairwoman Janet Yellen kept the door open to another increase in short-term interest rates this year, but sounded a note of caution on still weak inflation in the U.S. and abroad. The “ongoing strength of the economy will warrant gradual increases” in short-term interest rates, the Fed chairwoman said, although she didn’t specify when the next rate increase would come. Gradual increases in the benchmark federal-funds rate “are likely to be appropriate over the next few years to sustain the economic expansion,” Ms. Yellen said Sunday at a Group of 30 banking seminar in Washington. Fed officials are nonetheless watching price pressures closely, Ms. Yellen said, as the “biggest surprise in the U.S. economy this year has been inflation.” … Ms. Yellen on Sunday said Fed officials “will be paying close attention to the inflation data in the months ahead.” … “My best guess is that these soft readings will not persist, and with the ongoing strengthening of labor markets, I expect inflation to move higher next year,” Ms. Yellen said, adding that “most of my colleagues on the [interest-rate-setting Federal Open Market Committee] agree.”

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