Yellen expects Fed to raise key short-term interest rate this year

Yellen expects Fed to raise key short-term interest rate this year - LA TimesFederal Reserve Chairwoman Janet L. Yellen said Friday she expected the central bank to raise its benchmark short-term interest rate this year if the economy continues to slowly improve.It was her clearest signal yet of when the Fed would increase the so-called federal funds rate for the first time since 2006.The Fed has held the rate near 0% since late 2008 in an attempt to boost economic growth and hiring. With the economy improving, Fed policymakers have indicated they could start raising the rate as soon as June.Inflation increases slightly in April as energy prices remain lowJim PuzzangheraInflation increased slightly in April as energy prices remained low and costs for groceries, clothing and airfares declined, the Labor Department said Friday.Inflation increased slightly in April as energy prices remained low and costs for groceries, clothing and airfares declined, the Labor Department said Friday. ( Jim Puzzanghera )But some recent weak economic data have led many analysts to predict the Fed would not raise the rate until at least September -- and maybe not until next year.And minutes of the Fed's most recent meeting, in April, showed many policymakers "thought it unlikely" that economic data available by June would be strong enough to warrant a rate hike.lRelated BUSINESSPanel moves to weaken Dodd-FrankSee all related8In a speech Friday in Providence, R.I., Yellen said that an economic slowdown in the first three months of the year appeared to be "largely the result of a variety of transitory factors," including unusually bad winter weather and a dispute at West Coast ports.Growth should pick up to a moderate pace as the year progresses, she said."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," Yellen saidBut she said the labor market will need to continue improving and inflation will have to show signs of picking up.The Fed wants inflation to increase by 2% annually. But a Labor Department report on Friday said the consumer price index declined 0.2% in the year ended April 30.Recent low inflation has been caused largely by the sharp decline in oil prices that began last year. So-called core inflation, which excludes volatile energy and food prices, increased 0.3% in April, the largest rise since January 2013.For the year ended April 30, core inflation was 1.8%.cComments@michael_steindel Once someone raises prices do they ever really come down?gaiapjat 1:04 PM May 22, 2015Add a commentSee all comments3"Inflation has been held down by the continued economic weakness during the slow recovery and, more recently, by lower prices of imported goods as well as the fall in oil prices," Yellen said.But with oil prices no longer declining, Yellen said she and her colleagues on the policy-making Federal Open Market Committee believe that inflation "will move up to 2% as the economy strengthens further and as other temporary factors weighing on inflation recede."In a March 27 speech, Yellen said an increase in the federal funds rate "may well be warranted later this year" if the economy continued to improve. An in a March 18 news conference she said most of her Fed colleagues "are anticipating that it will be appropriate to begin" to raise the rate "sometime this year."Yellen went further Friday in signaling her expectation of when the first rate hike would come.An improving labor market had brought the economy closer to maximum employment and "home prices have moved up appreciably in many areas of the country," she said.But she cautioned that "the headwinds facing our economy have not fully abated," specifically noting that "the generally disappointing pace of wage growth also suggests that the labor market has not fully healed."Follow @JimPuzzanghera on TwitterCopyright (C) 2015, Los Angeles Times href='http://www.latimes.com/business/la-fi-janet-yellen-federal-reserve-interest-rate-20150522-story.html' - http://www.latimes.com/business/la-fi-janet-yellen-federal-reserve-interest-rate-20150522-story.html -