Fed Chairman, Yellen: Additional Gradual Rate Increase Still Possible

The Federal Reserve Chairman, Janet Yellen, said in her testimony in front of the Congress that the current economic path is expected to call for more gradual increments in the Federal Fund rates. The economy moved upwards in Q2 due to household and business investment spending and stronger world economy. She described the inflation response to the economy as a risk factor. The inflation rate is being monitored carefully, despite the fact that the recent decline was a result of unusual drop in certain bonds.

The statement also mentioned that the Federal Reserve won’t need to raise rates much further to reach to the current lower expectations of the natural federal fund rates. Yellen considered the risks associated with growth faster or slower then what the fed currently expects as being almost equal. With regards to the budget, it is expected to execute plans of reduction this year. In the medium-term, the rate prices are going to be the main tool of monetary policy, although there is a possibility of using the budget again if there was a financial deterioration in the economic horizons.

The comments stating that there is no need for much further rate rises in order to reach a natural price, should weaken the expectations of the amount of increases in the medium-term rates which tend to undermine the dollar, although the general rhetoric didn’t essentially change from the last statements. It is likely that Yellen will face more questions about the natural rate level in the Questions and Answers section later in her testimony, and she will probably face tough questions in other areas.

The comments also supports the fact that the inflation data will be crucial during the few coming months.