JAKARTA (TheInsiderStories) – U.S. Federal Reserve (The Fed) chair Janet Yellen affirmed her views of short-term interest rates later this year if the US economy expands as expected, foreign media reported. The U.S central bank may have to hike them more rapidly when it starts changing the policy, she said.
In congressional testimony last week, Yellen said that the U.S. economy has proven resilient so far in the face tumultuous world events. She added, low oil prices and an improving job market are likely to boost the U.S. economy and easy money policies by the world’s central banks will help the global economy.
Those remarks supported expectations that the Fed may raise rates as soon as September. A rise in U.S. borrowing costs usually hurts attractiveness of higher-yields of emerging Asia.
ANZ senior currency strategist Khoon Goh said the markets were still pricing in a “very gradual” normalization and had not fully factored in a September U.S. rate hike. “A hike in September will still be seen as dollar positive,” Goh said, adding that emerging Asian currencies may weaken due to the greenback’s strength.
Yellen elaborated more that the Fed might reconsider a 2015 rate hike if the tumult in China or Greece threatened to spread. But for now, the Fed is on track this year to raise the short-term rate it controls from near zero, where it’s been since December 2008.
The American economy has been improving since getting off to a terrible start this year. After shrinking at an annual rate of 0.2% from January through April — a dip blamed largely on bad winter weather and other temporary factors — the U.S. economy is picking up momentum. It is expected to register a modest 2% to 2.5% growth for the year.
In the labor market, employers have added more than 2.9 million jobs the past year. Unemployment tumbled last month to a seven-year low of 5.3 percent. Still, some are cautious about the U.S. economic outlook.
International Monetary Fund chief Christine Lagarde has urged the Fed to delay a rate increase until 2016, arguing that the risk that a premature hike will damage growth outweighs the risk that a tardy hike will unleash inflation or swell a dangerous bubble in the price of stocks, real estate and other assets.
Europe continues an agonizing economic recovery. The collective economy of the 19 countries that use the euro currency grew modestly from January through March. Prices across the eurozone rose in June for the third straight month, easing fears that the region was at risk of sinking into a destructive deflationary spiral.
European Central Bank (ECB) chairman Mario Draghi took added, noting that the ECB’s 60 billion euros in monthly bond purchases have supported Eurozone growth. Draghi repeated his pledge to do everything within his power to prevent fallout from the Greek crisis from damaging the broader European economy.
And he did his part for Greece, the ECB on Thursday agreed to increase financial support for Greece’s banks, which have been closed since June 29 and were in danger of collapsing entirely. (*)
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