Interest rate hike likely by year-end, says US Fed Chair Janet Yellen

Federal Reserve Chair Janet Yellen on Wednesday said that an interest rate hike remained likely by this year-end as the US economy improves. The job scenario in US has improved and if the economy improves as expected the rate hike may come through, she said while presenting the monetary policy report to House Financial Services Committee.

"If the economy evolves as we expect, economic conditions likely would make it appropriate at some point this year to raise the federal funds rate target, thereby beginning to normalize the stance of monetary policy. Indeed, most participants in June projected that an increase in the federal funds target range would likely become appropriate before year-end," Yellen said.

"But let me emphasize again that these are projections based on the anticipated path of the economy, not statements of intent to raise rates at any particular time," she added.

The rate hike if comes through would be the first since 2006. International Monetary Fund (IMF) earlier this month had however advised Federal Reserve against increasing the interest rates this year and keep it between the current 0% and 0.25%. IMF had said that US should keep the rates unchanged till the first half of 2016.

The US Fed Chair said that the inflation in US economy was in control and the employment had improved.

"Inflation has continued to run below the level that the Federal Open Market Committee (FOMC) judges to be most consistent over the longer run with the Federal Reserve's statutory mandate to promote maximum employment and price stability. The unemployment rate now stands at 5.3 per cent, slightly below its level at the end of last year," she said.

She said but the labour market conditions were not consistent with maximum employment.

"However, these measures - as well as the unemployment rate - continue to indicate that there is still some slack in labor markets. For example, too many people are not searching for a job but would likely do so if the labor market was stronger. And, although there are tentative signs that wage growth has picked up, it continues to be relatively subdued, consistent with other indications of slack. Thus, while labor market conditions have improved substantially, they are, in the FOMC's judgment, not yet consistent with maximum employment," she said.