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Yellen Says Gradual Rate Increases Should Help Sustain Economy's Growth

15 Oct 2017 1:00 pm
By Harriet Torry 

WASHINGTON -- Federal Reserve Chairwoman Janet Yellen said "the ongoing strength of the economy will warrant gradual increases" in short-term interest rates, to keep unemployment low and to nudge inflation toward the Fed's 2% target.

Gradual increases in the benchmark federal-funds rate "are likely to be appropriate over the next few years to sustain the economic expansion," Ms. Yellen said, according to remarks prepared for delivery Sunday at a Group of 30 banking seminar in Washington.

Fed officials are nonetheless watching price pressures closely, Ms. Yellen said, as the "biggest surprise in the U.S. economy this year has been inflation."

The Fed's preferred price gauge, the personal-consumption expenditures price index, rose 1.4% on the year in August and so-called core prices were up just 1.3% -- well below the Fed's long-elusive 2% annual target.

"My best guess is that these soft readings will not persist, and with the ongoing strengthening of labor markets, I expect inflation to move higher next year," Ms. Yellen said, adding that "most of my colleagues on the [interest-rate-setting Federal Open Market Committee] agree."

She cautioned, however, that U.S. central bankers recognize recent low inflation could reflect something more persistent.

"The fact that a number of other advanced economies are also experiencing persistently low inflation understandably adds to the sense among many analysts that something more structural may be going on," she said to the G-30, a private group of prominent central bankers, financiers, regulators and academics.

In her prepared remarks, Ms. Yellen gave her first public comments on the labor market since the Labor Department reported the first decline in U.S. nonfarm payrolls in seven years for September, as the economy took a hit from hurricanes in Florida and Texas.

While the U.S. shed 33,000 jobs in September, ending the longest stretch of job growth on record, Ms. Yellen said "other aspects of the jobs report for September were strong." She noted a decline in the unemployment rate to 4.2%, and said news on average hourly earnings was "encouraging."

"I would expect employment to bounce back in subsequent months as communities recover and people return to their jobs," she said of the effects of the hurricanes.

Write to Harriet Torry at harriet.torry@wsj.com

(END) Dow Jones Newswires

October 15, 2017 09:00 ET (13:00 GMT)

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