Yellen sees rates rising gradually without giving precise timing

FEDERAL RESERVE Chair Janet L. Yellen said positive forces supporting U.S. job growth and higher inflation will still probably outweigh negative developments, calling additional gradual interest-rate increases appropriate without specifying their precise timing. She is shown in a file photograph from the Economic Outlook Luncheon last year put on by the Greater Providence Chamber of Commerce. / BLOOMBERG NEWS FILE/SCOTT EISEN
FEDERAL RESERVE Chair Janet L. Yellen said positive forces supporting U.S. job growth and higher inflation will still probably outweigh negative developments, calling additional gradual interest-rate increases appropriate without specifying their precise timing. She is shown in a file photograph from the Economic Outlook Luncheon last year put on by the Greater Providence Chamber of Commerce. / BLOOMBERG NEWS FILE/SCOTT EISEN

WASHINGTON – Federal Reserve Chair Janet Yellen said positive forces supporting U.S. job growth and higher inflation will still probably outweigh negative developments, calling additional gradual interest-rate increases appropriate without specifying their precise timing.

“I continue to think that the federal funds rate will probably need to rise gradually over time to ensure price stability and maximum sustainable employment in the longer run,” Yellen said, according to the text of a speech she is scheduled to deliver Monday in Philadelphia.

Yellen was less specific than in her previous remarks in describing when she thought the Fed should raise rates again. On May 27 at Harvard University, she said an increase would likely be appropriate in “coming months,” a phrase omitted from Monday’s speech text. Since then, the Labor Department on Friday reported U.S. employers in May added the fewest number of new jobs in almost six years, causing expectations for a rate increase to plunge.

The May employment numbers were “disappointing,” she said, while also pointing to one of the few encouraging elements of the report — the increase in average hourly earnings.

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“Recent signs of a slowdown in job creation bear close watching,” Yellen said. “If the May labor report was an aberration or reflects a temporary slowdown resulting from the weakness in economic activity at the start of the year, then job growth should pick up and support further gains in income.”

Yellen’s remarks come eight days before officials gather in Washington to consider raising interest rates for the first time since December.

Global ‘bumpiness’

The Fed chair said she is watching “four areas of uncertainty” in the economic outlook, including weak investment trends and last week’s employment report, which raise questions over the U.S. economy’s resilience in a time of “fairly considerable global bumpiness.”

Global risks are also a concern, Yellen said, citing China’s growth rate and the U.K. referendum this month on membership in the European Union. There is uncertainty over whether rates of U.S. productivity, or output per hour, will pick up, and over how quickly inflation will move back to the central bank’s 2 percent target, she said.

Yellen’s speech may be the final public word before Fed officials enter their traditional self-imposed quiet period heading into the June 14-15 meeting of the Federal Open Market Committee.

In addition to reviewing an interest-rate increase, policy makers will also release updated quarterly forecasts. In March they projected that two quarter-point increases would be warranted this year. Investors expect only one move, based on prices in federal fund futures contracts.

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