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September 25, 2015

Yellen expects slow rate rise to begin in 2015

The Federal Reserve will likely begin to increase the federal funds rate target this year if inflation remains stable and the economy can sustain employment growth, Fed Chair Janet Yellen said Thursday.

Speaking at the University of Massachusetts at Amherst, Yellen said she and the Federal Open Market Committee expect the U.S. economy will be able to achieve maximum employment and maintain stable price expectations.

"Most FOMC participants, including myself, currently anticipate that achieving these conditions will likely entail an initial increase in the federal funds rate later this year, followed by a gradual pace of tightening thereafter," she said. "But if the economy surprises us, our judgments about appropriate monetary policy will change."

The FOMC on Sept. 17 left the federal funds rate – now at a range of 0 to 0.25 percent – unchanged and gave no hard indication of when liftoff might occur. NAFCU Director of Research and Chief Economist Curt Long said Yellen's statement Thursday suggested the Fed sees a path forward.

"Last week's statement was a confusing one in that it offered no real guidance on how close the Fed was to tightening," said Long. "Since then, Fed officials have kept the message clear and to the point: barring something unforeseen, liftoff is coming this year."