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US Fed chair says gradual rate hikes, balance-sheet reduction to continue
17 July 2017, 04:12 | Rufus Hill
Dow sets record-high close Fed signals gradual rate hikes
But because we also anticipate that the factors that are now holding down the neutral rate will diminish somewhat over time, additional gradual rate hikes are likely to be appropriate over the next few years to sustain the economic expansion and return inflation to our 2 percent goal.
While investors and some Fed officials are anxious about the recent dip in inflation and are looking for greater progress toward the central bank's 2% target, Yellen argued that some temporary factors are holding back inflation but the Fed is still on pace to hit its target goal.
Yellen said some temporary factors appear to be at work in holding down inflation but the Fed was focused on achieving the target.
"It was a little bit more dovish than most had thought", Richard Scalone, co-head of foreign exchange at TJM Brokerage, told Reuters.
Yellen also noted that given current estimates, the federal funds rate "would not have to rise all that much further" to reach a neutral level that neither encourages nor discourages economic activity.
However, she listed inflation as one of the uncertainties the economy is facing.
Traditionalists at the Fed, including Yellen, believe that if policy makers do not tighten pre-emptively in this environment, unemployment will undershoot its natural rate, pushing inflation above target. Japan's Nikkei 225 index gained 0.14 percent as of 10:20 a.m. HK/SIN.
The Fed has increased rates three times since December but weak growth remains an obstacle.
The S&P 500 was up 16.48 points, or 0.67 percent, at 2,442.01 and the Nasdaq Composite was up 51.59 points, or 0.83 percent, at 6,244.89.
Investors will be keeping an eye on second-quarter earnings reports on Friday from big US banks including JPMorgan Chase, Wells Fargo and Citigroup.
The dollar index, which tracks the greenback against six major rivals, was up 0.08 percent to 95.748, after falling to 95.511, its lowest since June 30.
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