An interest rate hike “may be warranted” this year, as long as the U.S. economic recovery is sustained, Federal Reserve Chairman Janet Yellen said Friday afternoon.
“With continued improvement in economic conditions, an increase in the target range for that rate may well be warranted later this year,” Yellen said at San Francisco Fed conference.
“Of course, the timing of the first increase in the federal funds rate and its subsequent path will be determined by the Committee in light of incoming data on labor market conditions, inflation, and other aspects of the current expansion.”
Yellen and her colleagues believe that this year’s collapse in oil prices will prove transitory. Along with highly accommodative monetary policy from the Fed, she thinks this will help move inflation up to 2 percent over the medium term.
While the Fed is likely to raise rates from zero in the second half of 2015, subsequent tightening of monetary policy will be slow.
“Most of my colleagues and I believe the return of the federal funds rate to a more normal level is likely to be gradual,” she added.
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