Fed sees limits to interest rate rises

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The Federal Reserve raised interest rates in June

Interest rates are likely to remain historically low over the longer term, the head of the US central bank said on Wednesday.

Federal Reserve Chair Janet Yellen said the bank was looking to normalise its policies, neither boosting or limiting economic activity.

But a key bank interest rate would not have to rise “all that much further” to reach that neutral level, she said.

She also said she expected further increases over the next few years.

Ms Yellen was reporting to members of Congress about bank policy and the economic outlook.

The US jobs market has strengthened and inflation is expected to rise toward the Federal reserve’s 2% target, she said. The global economy has also improved, although economic challenges remain, she added.

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The steady ascent of Janet Yellen

She said the Fed was committed to relying primarily on interest rates as its key policy tool and noted that many of her colleagues thought one further rate increase would be warranted this year.

But interest rates – which increase the cost of borrowing for individuals and businesses – are unlikely to rise to levels that were once common, she said.

“The Committee continues to anticipate that the longer-run neutral level of the federal funds rate is likely to remain below levels that prevailed in previous decades,” she said in prepared remarks to Congress on Wednesday.

The Federal Reserve has pursued gradual interest rate increases in recent years, after lowering them to boost economic activity amid the financial crisis.

US stocks rose after Ms Yellen’s testimony was published – with the exception of those in the financial sector, which typically benefit from higher interest rates.

Fed sees limits to interest rate rises

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