Fed’s Yellen says gradual rate hikes will “probably be appropriate”

Federal Reserve Chair Janet Yellen on Monday said US economy will continue to improve and she expects that further gradual increases in the federal funds rate will probably be appropriate to best promote the FOMC's goals of maximum employment and price stability.

Regarding Friday’s jobs report, Yellen said that “although this recent labor market report was, on balance, concerning, let me emphasize that one should never attach too much significance to any single monthly report. Other timely indicators from the labor market have been more positive.”

When discussing inflation, Chair Yellen noted that while the economy has made great strides toward the FOMC's objective of maximum employment, somewhat less progress has been made toward Fed’s inflation objective.  “But I remain optimistic, because two factors that have been holding down inflation will likely prove only temporary”, Yellen said.  She pointed as lower oil prices and a strong dollar as main temporary factors constraining prices.

“But oil prices have stopped declining and indeed have risen from their low point earlier this year. And, since the beginning of the year, the dollar has been roughly unchanged against a broad basket of currencies. As the downward pressure on prices from these two forces dissipates and as the labor market strengthens further, I expect inflation to move back to 2 percent,” she said.

Yellen highlighted "considerable and unavoidable" uncertainties could affect the outlook for the US economy and the path of monetary policy, including slowing global growth, low US productivity and the inflation outlook.

“My colleagues and I will make our policy decisions based on what incoming information implies for the economic outlook and the risks to that outlook. What is certain is that monetary policy is not on a preset course, and that the Committee will respond to new data and reassess risks so as to best achieve our goals”, she concluded her speech in Philadelphia.